Oppenheimer Raises Costco's (COST) Rating to Outperform Following Recent Underperformance

(Updated - July 10, 2015 8:44 AM EDT)

Oppenheimer upgraded Costco Wholesale (NASDAQ: COST) from Perform to Outperform with a price target of $160. Analyst Brian Nagel noted recent underperformance vs the S&P 500 and other Hardlines. He also called the company one of the world's best-run and most powerful retail chains and said its premium valuation reflects "operational prowess."

"Valuation and lack of a catalyst have kept us on the sidelines with COST despite the chain's operating prowess. We now see an opportunity in shares for intermediate to longer term-oriented investors. COST has underperformed lately amid modest EPS disruptions and a flow of funds from staples-related names," said Nagel.

"Shares now trade at one of their lowest relative P/E multiples since 2011. A potential membership fee lift and an end to incremental IT spending suggest the potential for better EPS over the next couple of years. We are upgrading COST shares to Outperform and establishing a $160 price target, which implies upside of about 15% from current levels," continued the analyst.

Nagel added, "For FY15 (Aug.) we now look for EPS of $5.20 vs. $5.15 previously and a Street figure of $5.23. Our FY16 (Aug. 2016) estimate remains $5.70 vs. a consensus estimate of $5.66. For FY17 (Aug. 2017), we look for earnings of $6.35 vs. $6.40 previously and consensus estimates of $6.26."

For an analyst ratings summary and ratings history on Costco Wholesale click here. For more ratings news on Costco Wholesale click here.

Shares of Costco Wholesale closed at $139.45 yesterday.

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