BMO Is Revising EPS At Costco, Says 'It's All About That Base'

In a report published Wednesday, BMO Capital Markets analyst Kelly Bania maintained an Outperform rating on Costco Wholesale Corporation COST, with a price target of $165. In the report, BMO Capital Markets noted, "We identified four periods since 2007 (incl current period) during which FX was detrimental to Int'l comps by more than (5%). COST shares appreciated in three of the four periods and declined in only one period, during which the stock declined (9/08-7/09); the company's base comps (excl FX and gas) also decelerated sharply, from +6 to (1%). " "During the three periods in which the stock appreciated, base comps were stable in the M-HSD% range. We also identified three periods of extreme FX boost to Int'l comps by 5%+ since 2007 and the stock appreciated in two and was flat in one," Bania wrote. "FX could weigh on Int'l comps by about (10%) in F15 (vs. -8% previously) and on EPS by as much as ~($0.24), or more than double the (4%) drag to comps and ($0.10) to F2014 EPS; however, we believe the outlook for "base" comps remains strong, supported by: 1) strength of organics; 2) ongoing penetration of executive members (which tend to comp +25-30% in the first year post upgrade); and 3) up-ticking conversion of gas pump customers shopping inside the club," the analyst explained. The EPS estimates for Q3/15 and Q4/15 have been reduced from $1.15 to $1.14 and from $1.66 to $1.64, respectively. Consequently, the EPS estimate for 2015 has been reduced from $5.12 to $5.08.