Margins on the core products the warehouse club sells in its stores were down slightly, McGranahan said, and while that is an improvement there are questions about whether that performance is sustainable as Wal-Mart's Sam's Club starts to cut prices.
The analyst also noted that Costco hiked membership fees, which account for around 80 percent of earnings, about a year ago, and that growth is now starting to decelerate.
He also doesn't expect Costco to continue to take on debt to fund special dividends. Last month, Costco borrowed $3 billion for a special dividend before tax rates increase next year.
McGranahan said the company is extremely under-leveraged and borrowed at extremely low interest rates. "There was some transfer of value from the debt market to the equity holders, but I don't think we see that going forward," he said.
McGranahan has an "underweight" recommendation on the stock and a $95 price target.
"There's not a lot of margin opportunity," he said. "It's a good long-term growth story, it's a phenomenal business but it looks like it's fully valued here."
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Disclosures: Sanford Bernstein currently makes a market in shares of Costco.