Costco’s Fiscal Year Ends As Solidly as We Had Expected, but the Shares Are No Bargain

Our $454 per-share valuation of wide-moat Costco should not change materially after it announced fourth-quarter (ended Aug. 28) earnings that approximated our expectations. With the warehouse club’s ongoing resilience despite inflation (unsurprising considering the chain’s long record of strong performance in a variety of economic environments), we see little reason to change our long-term expectations, which call for mid- to high-single-digit annual percentage revenue growth and operating margins approaching 4% over the next decade. While we continue to see Costco as one of the most competitively advantaged retailers worldwide, we suggest prospective investors seek a greater margin of safety (the shares were little changed in after-hours trading, trading modestly higher than our valuation.)