) to market perform.
Analyst Brent Rystrom says despite strong sales growth during July, Costco is experiencing gross margin deterioration, as well as increases in costs associated with employee benefits, workers' compensation, and expenses related to initiatives for improving customer service and checkout times.
As a result of these developments, he thinks valuation is excessive given Costco's guidance of 8%-10% earnings per share growth. Rystrom cut the $1.59 fiscal 2003 (Aug.) earnings per share estimate to $1.48, and cut the $1.80 fiscal 2004 estimate to $1.62. He cut the price target to $37.