Costco: Despite an Enviable Industry Position and Favorable Growth Runway, Shares Look Expensive

We modestly lower our fair value estimate on wide-moat Costco to $450 per share, from $490 previously, due to a slight pullback in our midcycle operating margin forecast to 4.0% (from 4.2%). While we expect the retailer to further leverage its fixed costs over a robust sales base in coming years, we anticipate Costco will follow its historical precedent of reinvesting some profits into lower unit selling prices to drive volume growth, keeping gross margins anchored.