Costco reports Thursday morning before the bell

Costco, the warehouse club king, reports fiscal q3 earnings before the bell on Thursday, with analyst consensus expecting $0.87 in eps (versus $0.73 a year ago) on $22.2 bl in revenue (versus $20 bl a year ago) for year-over-year growth in eps and revenues of 19% and 7% respectively.

Comp’s should be pretty decent as COST’s monthly comp’s have ranged from mid to higher single digits for some time, however the comp’s have been weakening: the last 4 quarters comp’s have been 12%, 10%, 8%, 8% seqeuntially, with the 12% comp occurring in April, 2011 quarter, so this quarter might be a tough compare. Comp’s ex gas have been stable at 7% the last 4 quarters.

COST has had a nice run for some time thus we are avoiding the stock. A resurgent Wal-Mart might put a dent in COST, particularly in the urban areas like Chicago where Wal-Mart Express’s are starting to pop up.

The other thing that worries me about COST is that Jim Sinegal has now retired. Probably one of the best CEO’s in all of big-box retail, his departure has to be felt at some point although i always thought the management team was a deep bench. I always liked the CFO Jim Galanti – i called COST once in the early 2000’s on a Saturday morning to leave a message and a question, and Galanti picked up the phone. Sounds cheesy, but that left an impression.

Current ’12 and ’13 eps consensus is $3.85 and $4.36 for expected growth this year and next of 17% and 13%.

COST’s cash flow metrics arent hugely compelling but arent overvalued by any means, at 11(x) enterprise value to cash-flow. The retailer is sitting on a lot of cash, and could be a more aggressive share repurchaser, but isnt.

Technically, the stock traded under its 200-day moving average today, and is sitting right on its 50-week moving average.

Bottom line, we love the company, but like the stock better closer to $70, although it may not ever get there (maybe $75 we’d start nibbling with the intent to average down).

Toll Brothers (TOL) had a decent earnings report this morning, and gushed about the housing recovery. Revenues rose 17% y/y, (my appolgies: in our preview, thanks to a spreadsheet modeling error, we wrote last night that revenues were expected to decline 40% – the April ’11 revenue figure was wrong on our model), while earnings rose to $0.10 per share from a loss of $0.12 last year. Toll is still not making a profit in terms of an operating basis, (income and revenues is coming from the joint ventures, etc. and putting them in the black), but the operating loss this quarter was the narrowest it has been in 3 years.

TOL was up on heavier volume today.

Long COST (long-term small position) and long TOL (sold half the position on Monday), long Wal-Mart

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