COST

Costco’s Business Humming Along Nicely, But Stock Is Not Cheap

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Image Source: Costco By Brian Nelson, CFA Costco Wholesale (COST) recently reported first quarter results for fiscal 2025, with revenue and non-GAAP earnings per share coming in ahead of expectations. Net sales for the first quarter advanced 7.5%, to $60.99 billion from $56.72 billion in the year ago period. Total comparable store sales, after adjusting for the impact of changes in gasoline prices and foreign exchange, increased 7.1% versus the consensus estimate of 6.3%. Comparable traffic rose 5.1%, while comparable ticket edged higher 0.1%. Costco experienced 13.2% adjusted e-commerce expansion in the period. Costco shared some fun facts about growth in its business on the conference call: Our U.S. bakery division has reached new records of 4.2 million pies being … Read more

Costco’s Shares Remain Pricey

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Image Source: Costco By Brian Nelson, CFA Costco Wholesale (COST) reported fiscal fourth-quarter results on September 26 where revenue came up a bit short relative to forecasts, while the company beat on the bottom line. For the 16-week fourth quarter, Costco reported a net sales increase of 1% compared to the 17-week fourth quarter of last fiscal year. Total company adjusted comparable store sales were 6.9% in the 16-week period, better than the consensus estimate of 6.4%. E-commerce adjusted comparable store sales were 19.5% in the quarter. Net income for the 16-week period was $5.29 per diluted share, compared with $4.86 per diluted share in the 17-week fourth-quarter period of a year ago. Management spoke of its international opportunity on … Read more

Brain Teaser – Reflexive versus Reflective

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Dear members: — Jason Zweig of the Wall Street Journal, wrote in his pioneering text, Your Money and Your Brain, a few fun examples of how sometimes the psychological process of anchoring and adjustment can trip us up. — In one notable example, Zweig wrote about how two psychologists Amos Tversky and Daniel Kahneman had asked volunteers to spin a wheel of fortune numbered from 0 to 100. The contestants didn’t know that the wheel was rigged to produce either a 10 or a 65 for the experiment. — After spinning the wheel, the contestants were then asked whether the percentage of total United Nations membership made up of countries in Africa was higher or lower than the number that came up. … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

Costco’s Comparable Store Sales Deliver

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Image Source: Costco By Brian Nelson, CFA On May 30, Costco (COST) reported solid third quarter results for its fiscal 2024 period ended May 12. Net sales for the quarter increased 9.1% thanks to total company adjusted comparable sales performance of 6.5% and e-commerce growth of 20.7%. Net income for the quarter came in at $1.68 billion, or $3.78 per share, which beat the consensus forecast. Management talked more about the performance on the conference call: Our average transaction or ticket was up 0.5% worldwide and up 0.7% in the U.S. Foreign currencies relative to the U.S. dollar negatively impacted sales by approximately 20 basis points, while gasoline price inflation positively impacted sales by approximately 30 basis points. Moving down … Read more

Costco’s Shares Have Surged Over the Past Year!

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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 … Read more

We Remain Bullish; Is This 1995 – The Beginning of a Huge Stock Market Run?

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Image: Large cap growth stocks have trounced the performance of the S&P 500, REITs, and bonds since the beginning of 2023. We expect continued outperformance in this area of the market. By Brian Nelson, CFA We’re now roughly four years past the depths of the COVID-19 meltdown, where equities collapsed in February and March of 2020. As the markets began to recover through 2020, our long-term conviction in equities only grew stronger. We think the biggest risk for long-term investors remains staying out of the market on the basis of what could be considered stretched valuation multiples. As we outlined heavily in the book Value Trap, valuation multiples hardly tell the complete story about a company and often omit key … Read more

Walmart’s Free Cash Flow Remains Robust, Buys Vizio to Boost Advertising Business

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Image: Walmart’s free cash flow generation during fiscal 2024 was superb and comfortably covers its cash dividends paid. By Brian Nelson, CFA On February 20, Walmart (WMT) reported excellent fourth quarter fiscal 2024 results, raised its dividend, and announced that it would acquire Vizio (VZIO) in a $2.3 billion all-cash deal. Walmart continues to be well-positioned in the current retailing environment after the step-change in prices over the past 12-18 months due to heightened levels of inflation, as consumers trade down to lower-priced value items. Shares of Walmart advanced followed the release of its report, and while they are trading above our fair value estimate at the time of this writing, we see upside to the high end of our … Read more

12 Reasons to Stay Aggressive in 2024

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By Brian Nelson, CFA 1. The Fed has signaled that rate cuts could start with inflation at a 2 handle (2 point something) and not at exactly 2.0%. That means that the Fed may become anticipatory to prevent overshooting to the downside with inflation. We see this as positive for long-duration equities, particularly those whose free cash flow generation is robust in the out-years, inclusive of big cap tech and the stylistic area of large cap growth. 2. Unemployment is at structural lows of 3.7%. Employers are working hard to keep talent on board, and with each paycheck, employees are pumping more and more money into the stock market via retirement accounts. This tailwind remains a stiff one and will … Read more

In the News: Google, McDonald’s, Costco, Apple

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Image: McDonald’s has released a new beverage concept, and it looks to be a hit. Image Source: CosMcs. By Brian Nelson, CFA The market continues to ebb and flow with the latest Federal Reserve commentary, but we continue to be fans of the strong foundation that is the U.S. employment market and the great promise of artificial intelligence [AI] as key themes for 2024. As we outlined in our recent guest post on Seeking Alpha, we continue to be huge fans of the net-cash-rich, free cash flow generating, secular growth powerhouses found in big cap tech and the stylistic area of large cap growth (SCHG). We expect these two areas to continue to lead the markets higher, if not in … Read more