USB Piper Upgrades Costco to 'Strong Buy'

Analyst Brent Rystrom says the warehouse club's stronger gross margin profit is driving results

USB Piper upgraded Costco Wholesale (COST ) to strong buy from outperform.

Analyst Brent Rystrom says the upgrade is based on improving sales trends, gross profit margins, and earnings per share growth rates. He says the third quarter sharply beat expectations. He also thinks the third-quarter earnings per share release suggests gross margin profit is becoming more important, since it's clearly driving the overall model as the last several quarters have all seen nice gross margin profit improvement.

Rystrom raised the fiscal 2003 (Aug.) earnings per share estimate by 2 cents, to $1.59, and upped the fiscal 2004 estimate by 6 cents, to $1.80. He also upped the $43.50 target to $46.80, which is 26 times the fiscal 2004 earnings per share estimate.

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