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:
We started the process of determining a valid price forecast for Costco Wholesale Corp with a discounted cash flow analysis -- the results of which can be found in the table below. To summarize, we found that Costco Wholesale Corp ranked in the 37th percentile in terms of potential gain offered. We should note, though, that the most conservative analysis suggests this stock will yield negative results -- and thus may be a potential short opportunity. 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 -- which is good for besting 89.59% of its peer stocks (US stocks in the Consumer Defensive sector with positive cash flow).
The business' balance sheet suggests that 6% of the company's capital is sourced from debt; this is greater than just 16.16% 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 42.64% of tickers in our DCF set.
Terminal Growth Rate in Free Cash Flow
Return Relative to Current Share Price
For other companies in the Consumer Defensive that have a similar discounted cashflow valuation profile (and ensuing price forecasts) as COST, try SPB, WMT, CLX, FLO, and MDLZ.
As an eventful and largely bearish September comes to an end, I looked at my All-Equities SRG (which stands for "storm-resistant growth") portfolio for a bit of postmortem analysis. I was impressed and relieved to see Five Below (FIVE), a stock that has generally underperformed since I turned bullish on...
D.M. Martins Research on Seeking Alpha | October 2, 2020
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