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Costco Wholesale Corp - Stock Quote COST

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Morningstar's Costco Wholesale Corp Stock Analysis

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Is it the right time to buy or sell?

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Costco’s Third-Quarter Margin Lower Than Expected, but Its Strengths Remain; Shares Trade Fairly

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Our $471 per share fair value estimate should not change much after wide-moat Costco posted third-quarter earnings (similar to the after-hours trading reaction to the news), with a time value of money-related adjustment offsetting the impact of lower-than-expected profitability (3.4% operating margin versus our 3.9% forecast). About half of the difference was attributable to the firm awarding employees an extra holiday, with the remainder coming from cost pressure as Costco balances profitability with membership value. Our long-term forecast calls for mid- to high-single-digit annual percentage revenue growth and 4% operating margins over the next decade. With the shares trading near their valuation, we suggest investors seek more of a margin of safety.

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Costco Wholesale Corp's 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).

999 Lake Drive
Issaquah, WA, 98027
T +1 425 313-8100
Sector Consumer Defensive
Industry Discount Stores
Most Recent Earnings May 31, 2022
Fiscal Year End Aug 30, 2021
Stock Type Aggressive Growth
Employees 288,000