Brian Sozzi Previews Earnings From Costco

Brian Sozzi of Wall Street Strategies is out with a research report on Costco (NASDAQ: COST), which is set to report earnings tomorrow. In the note, Sozzi attempts to predict the report ahead of the actual release.

In his report, Sozzi writes, "In case the tone was too subtle, we have been on the sidelines with respect to Costco in the lead up to its earnings announcement. The risk reward remains unfavorable despite the stock's pullback from the 52-week high, seeing as: (1) expectations are elevated; (2) deployment of capital on further share repurchases may disappoint a shareholder base that has been demanding more action; and (3) the much talked about membership fee income increase may be an event for the middle of 2012 instead of tomorrow."

In the fourth quarter, he cites continued currency tailwinds, existing members and new members going to Costco to get away from life's annoyances, stronger gross margins from gasoline price declines, and strong inventory management as being potentially positive reasons.

Sozzi also goes on to talk about the new buyback program, a potential dividend increase, a new CEO to take over for the founder of the company, and a stronger U.S. dollar hurting international same-store-sales growth.

He says, "On a P/E multiple basis, the stock is valued at a stark premium to a sector that is increasingly being pulled down by market volatility and at 21.7x forward earnings, trades in line with the nine-year mean multiple for Costco (strong earnings beat already factored in)."