Here's Why Costco Is 'One Of The Best Retailers In The World'

In a recent report, Wolfe Research Scott Mushkin wrote that Costco Wholesale Corporation (NASDAQ: COST) proved once again why it is "one of the best retailers in the world" when the company reported its second quarter results.

"We believe the value of a Costco membership is increasing and the company is seeing very strong renewal rates which are now up to 91% in the U.S. and Canada," Mushkin wrote. "A Costco member not only enjoys a superb retail store experience, but a compelling online offering and value-added services at a discount."

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Mushkin argued that Costco's valuation at 27.7x NTM consensus earnings per share is above the company's one, three, and five-year historical averages of 24.5x, 22.9x and 21.7x is warranted due to its strong business trends. The analyst added that a combination of superior merchandising and great prices should lead to an acceleration of revenue and EBIT growth that also justifies a multiple premium.

Bottom line, with even though valuations have expanded recently and are largely above historical averages, the equity will likely trade sideways given fewer near-term catalysts. However, the analyst noted that his confidence in the business model and strategy is "higher than it has ever been" and the long-term prospects for better revenue and earnings growth remain "very compelling."

Shares are Outperform rated with a $158 price target.