Image: Costco’s shares have run past the high end of our fair value estimate range. Shares look pricey at the moment.
By Brian Nelson, CFA
Shares of market darling Costco (COST) have had a mighty run over the past year, advancing more than 65%. The company is a social media favorite and operates at the center of the mindset of consumers, providing both convenience and bulk savings to the shopper. The high end of our fair value estimate range for the big box retailer stands at ~$749, so we can’t say shares, which closed March 7 at ~$786 per share, are a bargain. However, Costco has rewarded patient investors considerably over the past several years and beyond.
For the quarter ended February 18, Costco put up net sales growth of 5.7% thanks to adjusted total company comparable store sales growth of 5.8% and adjusted e-commerce expansion of 18.2%. Earnings per diluted share advanced to $3.92 from $3.30 per share in the year-ago period. The membership warehouse giant continues to deliver on what consumers want when it comes to saving in bulk, and while competition for value-conscious dollars remains fierce with Walmart (WMT), Sam’s Club, Target (TGT), Dollar General (DG), Dollar Tree (DLTR) and others, it’s clear that Costco has found a nice niche on which to continue to build.
As of February 18, Costco had $9.1 billion in cash and $1.2 billion in short-term investments against $5.9 billion in long-term debt and $1.1 billion in short-term debt, meaning that it holds a nice net cash position. For the 24-weeks ended February 18, cash flow from operations dipped to $5.4 billion from $5.8 billion in the year-ago period, while capital spending edged up modestly to $2.07 billion from $1.95 billion. For the four-week period ended March 3, 2024, adjusted total company comparable store sales growth slowed a bit to 5.6%, while adjusted e-commerce expansion came in at 16%, but we’re not reading much into it. We like Costco a lot, but the company’s shares are rather pricey at the moment.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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