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Costco Wholesale Corp COST

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Costco’s Fiscal 2022 Is Off to a Strong Start, but Its Shares Are Not a Bargain

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

We plan to lift our $391 per share valuation of wide-moat Costco by a mid-single-digit percentage, reflecting a stronger-than-expected first quarter (which ended November), featuring 9.8% adjusted comparable growth that outpaced our 6% estimate. Although our near-term targets should rise, our long-term forecast still calls for mid- to high-single-digit annual percentage revenue growth and adjusted operating margins approaching 4% over the next decade. While we believe Costco is among the strongest retailers from a competitive standpoint, we suggest prospective investors seek a more attractive entry point.

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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).

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