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Red hot Costco shares fall after Oppenheimer downgrades, citing a record valuation

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Chicago resident and her son shop at Costco with a large grocery cart.

Tim Boyle | Getty Images News | Getty Images

Investors are way too optimistic on big-box retailer Costco, according to Oppenheimer.

The firm downgraded Costco’s high-flying stock to perform from outperform. Shares of Costco ticked 1% lower in premarket trading on Wednesday.

“As we look forward, we now see less upside for shares driven by the now even more premium valuation, potentially aggressive Street forecasts, and difficult compares especially in Q2,” said Oppenheimer analyst Rupesh Parikh in a note to clients.

Shares of Costco have surged more than 45% this year, outperforming the S&P 500 (up 18% year-to-date) dramatically. Strong core gross margin performance and opening stores in China have contributed to this year’s success; however, the retailer’s valuation is now well above past peak levels, said Parikh.

The firm slightly raised its price target to $300 from $295, as Costco’s stock was trading above its price target around $297.

Costco shares trade at 34.5x next twelve month consensus earnings estimates and 18.5x next twelve months enterprise value/EBITDA. Parikh said these are valuations “well above prior peaks on both metrics.”

For full-yer 2020 and 2021, Oppenheimer estimates earnings per share of $8.40 and $8.95, below current consensus estimates of $8.55 and $9.21, respectively.

Despite the downgrade, Parikh said Costco remains the firms best positioned company in the consumer staples and food retailing universe.

— with reporting from CNBC’s Michael Bloom.

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Attorneys say Supreme Court overlooked law in Columbia business owner’s case

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Cole

JEFFERSON CITY, Mo. (KMIZ)

Attorneys for a Columbia man said the Supreme Court of Missouri overlooked precedent and law when it reversed a decision granting him a chance at parole.

Kent Gipson and Taylor Rickard of Kansas City filed the request to rehear the case of Dimetrious Woods with the high court on Tuesday. The motion asks for the court to rehear the case and instead side with a Cole County judge that gave Woods a chance at parole in 2017.

The 6-1 Supreme Court decision said that the state legislature’s repeal of a law in 2014 barring parole for repeat drug offenders should not apply retroactively. Woods was sentenced to 25 years in prison without parole under the scheme in 2007, then sued once the law was repealed.

Woods’ motion said that common law dictates that repealed laws dealing with criminal sentences should apply retroactively. The motion quoted the late U.S. Supreme Court Justice Antonin Scalia who supported that position.

The motion also said the decision could cause unintended consequences for future legislative action in criminal justice.

“For example, if the Missouri legislature decides in the coming years to repeal the death penalty retroactively, which is not an unlikely scenario in light of public opinion and recent repeals in other states, the holding in this case could be used as a cudgel by the executive branch to stymie the voice of the people expressed through their elected representatives that Missouri should not sanction the executions of any unfortunate soul who received the death penalty before or after its repeal,” Gipson and Rickard wrote.

The attorneys and others fear the Supreme Court decision could allow the Department of Corrections to revoke his parole. Rickard said Woods would face a release date in 2036.

Boone / Columbia / Jefferson City / Missouri / Top Stories



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The dance of women leaders and limited economic opportunity

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Editor’s note: Six Democratic candidates met on the debate stage in Las Vegas on Feb. 19, discussing health care, immigration, billionaires and economic equality – as well as the name of the president of Mexico. We asked two scholars to pick out what they viewed as the night’s biggest moments as Nevada Democrats get ready for their caucuses on Feb. 22.

Both Lisa DeFrank-Cole, a professor of leadership studies at West Virginia University, and Jeffrey Waddoups, a professor of economics at the University of Nevada-Las Vegas, highlighted moments when Massachusetts Sen. Elizabeth Warren engaged in a fierce back-and-forth across the stage.

Democratic presidential hopeful former New York Mayor Mike Bloomberg speaks during the ninth Democratic primary debate.
Getty Images/Mark Ralston

Lisa DeFrank-Cole, West Virginia University

Elizabeth Warren: “Can I defend Senator Klobuchar for a minute? Look, you want to ask about whether or not you understand trade policy with Mexico? Have at it. If you get it wrong, you ought to be held accountable. … Let’s be clear: Missing a name all by itself does not indicate that you do not understand what is going on.”

In an era of political leaders bullying those they disagree with, it is refreshing to see one stand up for a competitor.

Even though Warren attacked Amy Klobuchar’s health care policy by saying it could fit on a “Post-it note,” she stood up for her colleague during another exchange, when Klobuchar was weathering criticism that she hadn’t remembered the name of Mexico’s president. Warren’s dual role of critic and defender in the debate reflects a challenge every woman leader faces.

Though a recent Gallup Poll found most Americans say they would vote for a woman for president, it is still not a sure thing. Society still expects women to be nurturing and helpful, not argumentative or decisive. Men, on the other hand, can be tough and strong with little or no regard for kindness.

It is hard for a woman leader to be seen as both likable and competent at the same time. This double bind makes it a challenge for women on the campaign trail like Elizabeth Warren and Amy Klobuchar. They need to project warmth and compassion while also demonstrating the ability to get the job done. Their task is difficult: Be smart, but not arrogant. Be kind, but not weak. Be feminine, but not emotional.

In addition, it’s dangerous to focus on being a woman and to seek sympathy for having a harder time than your male competitors.

By attacking one of Klobuchar’s policies, and then within the same debate coming back to defend her fellow senator, Warren is projecting warmth and compassion. This is the dance that women leaders do every day: Take two steps toward strength and one step back to show kindness. It’s a dizzying maneuver to master.

Democratic presidential hopefuls Massachusetts Senator Elizabeth Warren and Vermont Senator Bernie Sanders talk during the ninth Democratic primary debate in Las Vegas.
Getty Images/Mark Ralston/AFP

Jeffrey Waddoups, University of Nevada, Las Vegas

Elizabeth Warren: “This country has worked for the rich for a long time and left everyone else in the dirt.”

There was a time in U.S. history when prosperity was more or less equitably shared across all economic classes. During the period that started just after World War II until 1978, increases in the minimum wage and the income of the median household reliably matched up with increases in productivity of the overall economy.

During those years, increasing prosperity in the overall economy generally translated into proportionate increases in the prosperity of workers and middle-income households. In a real sense, the economy was working not only for the wealthy, but for middle-income and lower-income workers as well.

Then things shifted: Starting in the late 1970s, productivity as measured by output per worker continued its upward march. But the economic well-being of middle- and lower-income employees stagnated. Most workers were no longer sharing proportionately in the economy’s prosperity.

That disconnection was accompanied by the weakening of two important forces for better wages: a minimum wage that tracked with inflation, and widespread collective bargaining. Both of those elements give workers power – which Nevada’s Culinary Workers Union wants to protect.

The current federal minimum wage is $7.25 per hour, a number that has not risen since 2009. That amount has roughly 30% less buying power than the $1.60 hourly minimum wage in 1968, an amount worth $10.15 in today’s dollars, when adjusted for inflation. Many state and local governments have set higher minimum wages, but hundreds of thousands of workers across the country are earning the federal minimum.

Similarly, union representation has dropped since the 1970s. In 1979, 27% of American workers were represented by unions. In 2019, that number was just 11.6% – meaning millions of workers today don’t have the bargaining power to get wages and working conditions that similarly situated workers in the past enjoyed.



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JP Morgan’s Kolanovic sees a bubble in defensive and tech stocks

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Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, January 24, 2020.

Lucas Jackson | Reuters

A bubble has formed in defensive and low-volatility stocks as coronavirus fears drove a record number of investors to those pockets of the market, according to JPMorgan’s quant guru Marko Kolanovic.

Since the coronavirus outbreak, hedge funds have shifted their allocation into low-volatility and defensive names on a record level, pointed out by Kolanovic, the bank’s global head of macro quantitative and derivatives strategy.

Defensive stocks are generally not tied to economic growth. They include utilities, health care and consumer staples stocks. JPMorgan reiterated its call to sell out of defensive assets and rotate into cyclical assets such as value stocks, commodity stocks and emerging markets.

“Bonds, momentum stocks, and low volatility stocks rallied – pushing the valuation spread between defensive and cyclical stocks to a level 2x worse than during the peak of the late-’90s tech bubble,” Kolanovic said in a note to clients on Wednesday. “The bubble we are describing is expressed in equity factors … We caution investors that this bubble will likely collapse, i.e. this time is not ‘different.'”

Kolanovic added some tech names are trading at “unsustainable valuations” supported by record level of speculative call option activity.

“Value stocks are typically on the other side of all of these trends that inflated this bubble,” Kolanovic said. The strategist had called the rotation into value stocks in September that rocked investors. He called it a “once in a decade” trade then.

— CNBC’s Michael Bloom contributed reporting.

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