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NBG chief equity analyst Brian Sozzi and Morningstar equity analyst Michael Keara debate whether Costco will rise over Wal-Mart.
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Your 401 -- your portfolios look better so we would you all still be hitting the big box discount stores.
Cost cut came -- -- some information saying that's February's same store sales rose 6%.
The street had been looking for an increase of just under 5% but battling it tooth and -- Wal-Mart Wal-Mart did -- weakness in February when it posted fourth quarter results so.
If you have to pick one of the -- to own.
Should it be Costco which right now is moving slightly lower on the tape -- Scott for a street fight in the polls corner as we roll.
Michael -- he's Morningstar equity analyst and for the bears -- -- he's and BG chief equity analyst good to see both.
Michael Costco was one of your favorite names just tell us right -- about why.
-- as well over the long term -- basically the price leader on the to analyze the products that consumers need.
And it's food and fuel and as long as are going to be the price later -- that -- gonna drive consistent market share gains over the long term.
And over the near term simply going to be their income demographic we like better simply -- over snapped.
The payroll -- is -- probably not effect their because customer base as much as some.
As much you say the Wal-Mart costs.
That you just easily and here's a -- -- wanna I wanna pinpoint -- that you just threat Amex they do take Amex right I mean that's the one of the very few ways you can pay at Costco does that mean that they're aiming for that higher Amex.
Sort of profile client.
-- their their customer base is always been a little higher end.
If you look at say a Wal-Mart about 25% American consumers around snap which is food stamps essentially -- you look at the dollar stores over 40%.
And so we like we'd rather be position in that consumers face and say in in Wal-Mart and dollar store right now.
-- Costco had better than expected February sales so so why the -- Trace the call reality check it was for as long as I've been that is it is everybody loves hostile.
Fact the matter is a low single digit business -- sales and she actually actually cannibalizing.
Themselves that hurts their sales hurts their margins.
Increasing gasoline step at a gasoline -- over the past couple months.
Hurts their margins as well and also a fact and are on line and they're not as strong as they should be all lying -- these piece together they don't want any sort of joined here.
One final fun fact this -- remains one of the worst and allocating share eyebrow looking catch their shareholders.
Throughout the past couple weeks everybody giving their -- -- -- shareholders cops like sit on it and hope it grows gross.
-- we Janet they've got a 1% dividend yield up Michael to the membership fees bother you I -- apparently not but Brian I'm sure they do.
Well there reason they're -- low margin provider and that's what are gonna wind of long term.
If you're gonna go up against target or Wal-Mart -- basically give -- those consumer products and a seven or 8% margin.
As these two businesses class a three and a half percent or 3% margin business is going to be -- marketshare winner.
It into the dividend in terms of returning shares back to their shareholders -- get a special one time dividend not too long ago.
But again have a fundamental analysts and a look at cash flow generation and if you get you over year increases in operating profits.
These guys actually generate increases and operating profits -- save some -- -- -- -- have been flat to down.
But other names have been driving earnings and share repurchases that's correct.
But from a cash flow perspective these guys are generating a lot of cash and.
Yeah Brian -- -- -- of that plus people pay to shut up the cost of they have the membership fees so what do you say to that.
Offers a lot you're looking at cost rather value 21 times earnings 90% of balance sheet is in fact -- I haven't taller assets -- cash that's a finding good but they're.
-- on the price -- products more competitively in food and Sundays was about 50% of their business.
If we're having this discussion high and consumers want to look at Starbucks I think you've got a couple points they're looking -- -- taking share.
-- my shopping nickles.
Communists and really not growing that much that is valued as a growth name is a -- growth company.
Well what -- but well I mean now Michael I look at why.
I've been to Costco I really like it because I'd like that they have names like for gays say which is that is -- higher and make up climate than they have their own cost coast side to Whitman.
They've got great chocolate covered reasons.
Mean this is priority -- -- -- -- my husband.
You don't -- makes a point.
Makes a point that that if things are looking the way they are that you could actually just go to Wal-Mart may be get a better it depends better deal but then.
It does cost -- really offer what some people want when they walk into a big box retailer for example when you go into a target -- get those designers that have been hooked again.
Well -- return as a good job and designers but sometimes they miss and it doesn't really play out that well.
But I look at from an investor point of view and I don't like volatility.
And these guys put their profits twelve months in advance and -- that's why you see sort of -- -- multiple.
For a Costco vs -- -- got a -- -- don't want it appease about twenty a little bit richer than some of its competitors.
Right but they're gonna grow into that that you pay for the visibility they block their profits in twelve months in advance again if I understand -- and consumers aren't stupid.
People pay to shop at -- at Costco -- -- do differ reason they get the best value on what political product they're looking for Brian.
I get indices nicely when times earnings and normally it's about 42 times during I -- if you want to I consumer.
Go outlook other ways look at companies -- -- -- actually going to be Roy their shareholders with something -- 10% earnings growth which I think Virginia from cost over the next probably year and a half.
It's a street fight blood drawn.
We'll bring in the mops thank you Michael care of Morningstar -- analyst at Bryant says -- he has and -- chief equity analyst good to see both thank you so much.
For talking about Costco which is down slightly -- the market which is up 35 points for the Dow Jones industrials closing bell ringing in about fifteen minutes and stressing.
