Costco Wholesale operates membership warehouses, offering branded and private-label products in a range of merchandise categories. The company also operates gas stations, pharmacies, food courts, optical dispensing centers, photo processing centers, and hearing-aid centers,; and engages in the travel business. The company was founded in 1976 and is based in Issaquah, Washington.
COST Price Forecast Based on DCF Valuation
DCF Fair Value Target:
Below please find a table outlining a discounted cash flow forecast for COST, in which we model out valuation assuming a variety of terminal growth rates. To summarize, we found that Costco Wholesale Corp ranked in the 39th percentile in terms of potential gain offered. Our DCF analysis suggests the stock is overvalued by about 34.67%. The most interesting components of our discounted cash flow analysis for Costco Wholesale Corp ended up being:
Interest coverage, a measure of earnings relative to interest payments, is 34.19; that's higher than 89.74% of US stocks in the Consumer Defensive sector that have positive free cash flow.
The business' balance sheet suggests that 6% of the company's capital is sourced from debt; this is greater than just 16.9% of the free cash flow producing stocks we're observing.
COST's estimated cost of debt, based largely on its market capitalization and its interest coverage ratio, is 2%; for context, that number is higher than 42.39% of tickers in our DCF set.
Terminal Growth Rate in Free Cash Flow
Return Relative to Current Share Price
Want more companies with a valuation profile/forecast similar to that of Costco Wholesale Corp? See BUD, INGR, K, CHD, and CWGL.
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Jim Cramer writes that Covid-19 is not about to fade, contrary to analysts' thinking, and neither is Costco Wholesale (COST), the business model of which works great with or without a pandemic to aid it….OMI