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Costco Wholesale Corp COST

Rating as of

Morningstar’s Analysis

Valuation
Currency in USD
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Better Than Expected Earnings Should Nudge our Valuation for Costco Higher, but Its Shares Seem Rich

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Our $368 per share valuation of wide-moat Costco should rise by a low- to mid-single-digit percentage, reflecting the combined impact of the time value of money, expected ongoing near-term sales strength as the delta variant of the coronavirus runs its course, and a strong end to fiscal 2021 (ended Aug. 29). We continue to expect mid-single-digit percentage sales growth and 3%-4% adjusted operating margins once pandemic-related volatility eases, and suggest prospective investors seek a more attractive entry point despite our favorable view of the company and its competitive standing.

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Company Profile

Business Description

The leading warehouse club, Costco has 815 stores worldwide (at the end of fiscal 2021), with most sales derived in the United States (72%) and Canada (14%). It sells memberships that allow customers to shop in its warehouses, which feature low prices on a limited product assortment. Costco mainly caters to individual shoppers, but roughly 20% of paid members carry business memberships. Food and sundries accounted for 40% of fiscal 2021 sales, with non-food merchandise 29%, warehouse ancillary and other businesses (such as fuel and pharmacy) nearly 17%, and fresh food 14%. Costco’s warehouses average around 146,000 square feet; over 75% of its locations offer fuel. About 7% of Costco’s global sales come from e-commerce (excluding same-day grocery and various other services).

Contact
999 Lake Drive
Issaquah, WA, 98027
T +1 425 313-8100
Sector Consumer Defensive
Industry Discount Stores
Most Recent Earnings Aug 31, 2021
Fiscal Year End Aug 30, 2021
Stock Type Aggressive Growth
Employees 288,000

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