- Wachovia highlights Costco (NASDAQ:COST) as their top pick for 2007. While not deviod of near-term risk, firm's outlook for membership fee income (MFI) growth - and the associated value it conveys to equity investors - provides the foundation for what they believe is a very favorable underlying risk/reward profile on the shares over the next 6-12 months.
Accounting for more than 70% of COST's annual operating income and growing at impressive double digit rates, membership fee income represents a powerful (and visible) source of value creation for COST shareholders over time. Following ~11% growth in FY06, MFI grew 14% in 1Q07 and is poised to accelerate further in coming quarters (WACH sees ~16% growth for FY07 in total).
Beyond this rising MFI profile, factors which support our bullish stance on COST include significant free cash flow generation (they estimate as much as $600MM this year), aggressive share buyback activity (they assume $1.6 billion), and the potential for the implementation of a more restictive return policy on TVs at some point in the year.
Sees valuation range of around $60 to $62.
Notablecalls: I don't think the call will have much impact on the stock. In case you do feel inclined to trade this one the 200 MA (exp) should act the the tight leash.
Accounting for more than 70% of COST's annual operating income and growing at impressive double digit rates, membership fee income represents a powerful (and visible) source of value creation for COST shareholders over time. Following ~11% growth in FY06, MFI grew 14% in 1Q07 and is poised to accelerate further in coming quarters (WACH sees ~16% growth for FY07 in total).
Beyond this rising MFI profile, factors which support our bullish stance on COST include significant free cash flow generation (they estimate as much as $600MM this year), aggressive share buyback activity (they assume $1.6 billion), and the potential for the implementation of a more restictive return policy on TVs at some point in the year.
Sees valuation range of around $60 to $62.
Notablecalls: I don't think the call will have much impact on the stock. In case you do feel inclined to trade this one the 200 MA (exp) should act the the tight leash.
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