Costco Earnings: Moderating Growth Pressures Margin, but Long-Term Bright; Shares Trade Fairly

Our $490 per share valuation of wide-moat Costco should not change significantly after it posted third-quarter earnings, with the impact of sluggish sales offset by a time value of money-related adjustment. With the lackluster sales growth attributable to transitory factors like pressure on discretionary spending from economic uncertainty and price inflation ebbing faster than we foresaw, our long-term forecast should not change much (mid- to high-single-digit annual percentage revenue growth, operating margins approaching 4%). We have a favorable view of Costco’s prospects, but with the shares trading near our valuation, we suggest investors seek a wider margin of safety.