Costco Wholesale Corp. (COST) narrowly beat estimates in their fiscal 3^rd quarter which ended May 11. Consensus estimates for the bulk retailer called for profit of $.65 per share and revenues of $16.33 billion for the quarter. The results were slightly better at $.67 profit per share and $16.61 billion in revenue. The results were undoubtedly helped by consumers looking for bargains on food and gasoline at the warehouse stores. Costco is known for being a no frills megastore where customers can save by buying in large quantities. Consumers turned to Costco to help alleviate the strain put on their wallet by rising food and energy prices. This morning shares were trading higher after Costco released the data —6 cents off of its all time high— but they quickly fell below $71. The flurry of activity has settled for the time being, and at the time of writing, the shares are about even with where they started the day a little over $73.

The quarter was definitely a good one for Costco, as profit soared 32% but this was not a huge surprise. In times were the consumer spending slows, stores like Costco are very resilient as few retailers can compete with their prices. Costco had a great quarter internationally as same store sales were up 16% compared to 6% in their U.S. stores which is not bad at all. The company benefited greatly from the exchange rate, and sales were especially strong in Canada. It is our opinion that Costco stock has already priced in the fairly impressive performance of the quarter, and the results did not blow away the estimates.

The stock is trading very near its all time high which is probably justified as performance has been strong in the face of slowing economy and consumer spending environment. Since, the performance of the stock is not out of line with current fundamental data; our methodology rates this stock a Hold. It is trading with its normal price-to-sales and price-to-cash flow ranges and given the company’s current fundamentals we expect the stock to trade between $65 and $78 per share. So, Costco is fairly valued at this point, and should not be considered a buy candidate for long term value investors at this price level.