BUY COSTCO WHOLESALE CORP COST

Transcription

October 12, 2014
NASDAQ: COST
COSTCO WHOLESALE CORP
BUY
A+
A
A-
HOLD
B+
B
Annual Dividend Rate
$1.42
B-
C+
C
Annual Dividend Yield
1.10%
SELL
C-
D+
D
D-
Beta
0.52
E
E-
Market Capitalization
$56.3 Billion
Sector: Consumer Non-Discretionary
COST BUSINESS DESCRIPTION
Costco Wholesale Corporation, together with its
subsidiaries, operates membership warehouses.
The company offers branded and private-label
products in a range of merchandise categories.
E+
Weekly Price: (US$)
F
BUY
RATING SINCE
TARGET PRICE
52-Week Range
$109.50-$130.74
Sub-Industry: Hypermarkets & Super Centers
SMA (50)
SMA (100)
08/06/2009
$148.31
Price as of 10/9/2014
$128.41
Source: S&P
1 Year
2 Years
150
TARGET
TARGET
TARGETPRICE
PRICE$148.31
$148.31
PRICE
$148.31
TARGET
140
130
STOCK PERFORMANCE (%)
3 Mo.
Price Change
8.89
1 Yr.
12.06
120
3 Yr (Ann)
17.57
110
GROWTH (%)
Last Qtr
9.34
12.96
12.85
Revenues
Net Income
EPS
RETURN ON EQUITY (%)
COST
Q4 2014
16.72
Q4 2013
18.82
Q4 2012
13.82
12 Mo.
7.11
0.93
0.64
3 Yr CAGR
8.20
12.07
12.08
100
90
Rating History
BUY
Ind Avg
16.98
20.00
17.97
S&P 500
14.28
13.75
13.93
Volume in Millions
30
20
10
2012
2013
0
2014
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
P/E COMPARISON
RECOMMENDATION
We rate COSTCO WHOLESALE CORP (COST) a BUY. This is based on the convergence of positive investment
measures, which should help this stock outperform the majority of stocks that we rate. The company's
strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase
in net income, largely solid financial position with reasonable debt levels by most measures and increase in
stock price during the past year. We feel these strengths outweigh the fact that the company shows low
profit margins.
27.56
22.00
18.70
COST
Ind Avg
S&P 500
HIGHLIGHTS
The revenue growth came in higher than the industry average of 2.9%. Since the same quarter one year prior,
revenues slightly increased by 9.3%. Growth in the company's revenue appears to have helped boost the
earnings per share.
EPS ANALYSIS¹ ($)
2012
2013
Q4 1.58
Q3 1.07
Q2 1.05
Q1 0.96
Q4 1.40
Q3 1.04
Q2 1.24
Q1 0.95
Q4 1.39
Q3 0.88
Q2 0.90
Q1 0.73
COSTCO WHOLESALE CORP has improved earnings per share by 12.9% in the most recent quarter compared
to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share
growth over the past two years. We feel that this trend should continue. During the past fiscal year, COSTCO
WHOLESALE CORP increased its bottom line by earning $4.66 versus $4.63 in the prior year. This year, the
market expects an improvement in earnings ($5.15 versus $4.66).
2014
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental
data items.
The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly
outperformed compared to the Food & Staples Retailing industry average. The net income increased by 13.0%
when compared to the same quarter one year prior, going from $617.00 million to $697.00 million.
The stock has risen over the past year as investors have generally rewarded the company for its earnings
growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise
over the last year has already helped drive it to a level which is relatively expensive compared to the rest of
its industry. We feel, however, that the other strengths this company displays justify these higher price
levels.
The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been
successful management of debt levels. Despite the fact that COST's debt-to-equity ratio is low, the quick
ratio, which is currently 0.59, displays a potential problem in covering short-term cash needs.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2014. All rights reserved.
Report Date: October 12, 2014
PAGE 1
October 12, 2014
NASDAQ: COST
Sector: Consumer Non-Discretionary Hypermarkets & Super Centers Source: S&P
$1.42
1.10%
PEER GROUP ANALYSIS
12.5%
REVENUE GROWTH AND EBITDA MARGIN*
WILC
V
FA
AB
OR
CASY
CVS
CBD
BSI
UN
-12.5%
LE
AB
ANDE
3%
9%
EBITDA Margin (TTM)
Companies with higher EBITDA margins and
revenue growth rates are outperforming companies
with lower EBITDA margins and revenue growth
rates. Companies for this scatter plot have a market
capitalization between $86.7 Million and $94.9
Billion. Companies with NA or NM values do not
appear.
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization.
12.5%
REVENUE GROWTH AND EARNINGS YIELD
WILC
V
FA
COST
CVS
KR
CBD
LE
CASY
INDUSTRY ANALYSIS
Food and staples retailing is the second largest segment of the consumer staples industry and includes
wholesale food distribution, grocery retaining, specialty food stores, and drugstores. Major players are
Wal-Mart Stores (WMT), CVS Caremark (CVS), Walgreen Co (WAG), Sysco (SYY), Kroger (KR), Supervalu
(SVU), Safeway (SWY), and Whole Foods Market (WFM), all of which possess unique operational models. The
industry is defensive and characterized by stable growth.
The Food and Drug Administration (FDA) is the regulatory body for food manufacturers and drug retailers.
Regulation begins at the initial phases of development and continues through the manufacturing phase and
down the supply chain. Law makers are considering legislation to prohibit Canadian pharmacies from selling
prescription drugs to US mail-order customers in order to help domestic pharmacies. Prescription drugs
account for approximately 10% of the total US medical bill. Also, Medicare favors generic drugs and in doing
so influences industry participants.
In the wake of our recent recession, consumer preference has shifted towards cost-effective choices such
as discount groceries. Lifestyle drugs have been hit hardest. However, baby boomers are now propelling
growth in the drugstore segment, which is expected to expand within the consumer staples industry.
Increased pharmacy traffic is not necessarily a profit driver, but it triggers impulse purchase of general
merchandise and services.
The industry’s dependable revenue and low beta are commendable during an economic recession, but two
factors will curtail long-run performance, rising raw material costs and high valuations. Food and staples
retailing remains a stable business, but demand for food products is limited by the small annual US population
growth.
PEER GROUP: Food & Staples Retailing
IMKTA
BSI
UN
R
VO
FA
LE
AB
-12.5%
$128.41
AB
OR
PSMT
Revenue Growth (TTM)
52-Week Range
$109.50-$130.74
Demand for basic products remains stable regardless of economic conditions. Commodity pricing pressures
are being offset by corporate restructurings, which are helping to maintain margins. During periods of weak
growth, the industry tends to outperform.
CNCO
R
VO
FA
Revenue Growth (TTM)
IMKTA
-15%
$56.3 Billion
Food distributors maintain a specific product mix. Grocery stores are usually locally owned and have a fixed
client base. They record average annual revenue of $14 million. Supermarkets rely on a distribution network
to survive as they do not have enough space to store goods. Specialty stores use merchandising to attract
foot traffic. Drugstores focus on prescription customers and sell over-the-counter (OTC) drugs, health and
beauty aids, greeting cards, photo-finishing services, and general merchandise.
LE
KR
Beta
0.52
CNCO
ANDE
10%
Earnings Yield (TTM)
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -10.2% and
10.8%. Companies with NA or NM values do not
appear.
Ticker
COST
CVS
WILC
CNCO
CBD
IMKTA
CASY
KR
PSMT
BSI
ANDE
Company Name
CVS HEALTH CORP
G WILLI-FOOD INTL LTD
CENCOSUD SA
CIA BRASILEIRA DE DISTRIB
INGLES MARKETS INC
CASEYS GENERAL STORES INC
KROGER CO
PRICESMART INC
ALON BLUE SQUARE ISRAEL
ANDERSONS INC
Recent
Price ($)
128.41
81.95
6.68
8.63
44.93
23.74
74.66
53.26
85.29
2.83
57.48
Market
Cap ($M)
56,282
94,908
87
8,137
7,438
321
2,886
26,156
2,577
187
1,632
Price/
Earnings
27.56
20.04
10.77
15.69
20.90
10.94
22.15
17.41
NA
NM
14.20
Net Sales
TTM ($M)
112,640.00
132,053.00
99.28
19,203.14
26,042.57
3,820.00
8,016.69
103,963.00
2,494.51
3,389.67
5,081.02
Net Income
TTM ($M)
2,058.00
4,892.00
8.08
529.74
550.30
49.38
131.09
1,569.00
71.03
-32.56
114.83
The peer group comparison is based on Major Hypermarkets & Super Centers companies of comparable size.
PAGE 2
October 12, 2014
NASDAQ: COST
$1.42
1.10%
COMPANY DESCRIPTION
Costco Wholesale Corporation, together with its
subsidiaries, operates membership warehouses. The
company offers branded and private-label products in a
range of merchandise categories. It offers candy, snack
foods, tobacco, alcoholic and nonalcoholic beverages,
and cleaning and institutional supplies; appliances,
electronics, health and beauty aids, hardware, office
supplies, cameras, garden and patio, sporting goods,
toys, seasonal items, and automotive supplies; dry and
institutionally packaged foods; apparel, domestics,
jewelry, house wares, media, home furnishings, and
small appliances; and meat, bakery, deli, and produce.
The company also operates gas stations, pharmacies,
food courts, optical dispensing centers, one-hour photo
centers, and hearing aid centers; and travel businesses.
In addition, it provides business and gold star (individual)
membership services. As of March 6, 2014, it operated
649 warehouses, including 462 warehouses in the United
States and Puerto Rico, 87 in Canada, 33 in Mexico, 25 in
the United Kingdom, 18 in Japan, 10 in Taiwan, 9 in
Korea, and 5 in Australia. Costco Wholesale Corporation
also sells its products through online. The company was
founded in 1976 and is based in Issaquah, Washington.
999 Lake Drive
Issaquah, WA 98027
USA
Phone: 425-313-8100
http://www.costco.com
Employees: 184000
Beta
0.52
$56.3 Billion
52-Week Range
$109.50-$130.74
$128.41
STOCK-AT-A-GLANCE
Below is a summary of the major fundamental and technical factors we consider when determining our
overall recommendation of COST shares. It is provided in order to give you a deeper understanding of our
rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
valuation. Please refer to our Valuation section on page 5 for further information.
FACTOR
SCORE
5.0
Growth
out of 5 stars
weak
Measures the growth of both the company's income statement and
cash flow. On this factor, COST has a growth score better than 90% of
the stocks we rate.
strong
4.5
Total Return
out of 5 stars
weak
Measures the historical price movement of the stock. The stock
performance of this company has beaten 80% of the companies we
cover.
strong
4.5
Efficiency
out of 5 stars
weak
Measures the strength and historic growth of a company's return on
invested capital. The company has generated more income per dollar of
capital than 80% of the companies we review.
strong
5.0
Price volatility
out of 5 stars
weak
Measures the volatility of the company's stock price historically. The
stock is less volatile than 90% of the stocks we monitor.
strong
5.0
Solvency
out of 5 stars
weak
Measures the solvency of the company based on several ratios. The
company is more solvent than 90% of the companies we analyze.
strong
3.0
Income
out of 5 stars
weak
Measures dividend yield and payouts to shareholders. The company's
dividend is higher than 50% of the companies we track.
strong
THESTREET RATINGS RESEARCH METHODOLOGY
TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
perform against a general benchmark of the equities market and interest rates. While our model is
quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
PAGE 3
October 12, 2014
NASDAQ: COST
$1.42
1.10%
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
1.08
5.15 E
5.69 E
Q1 FY14
2015(E)
2016(E)
$56.3 Billion
52-Week Range
$109.50-$130.74
$128.41
FINANCIAL ANALYSIS
COSTCO WHOLESALE CORP's gross profit margin for the fourth quarter of its fiscal year 2014 has decreased
when compared to the same period a year ago. The company managed to grow both sales and net income at
a faster pace than the average competitor in its industry this quarter as compared to the same quarter a year
ago. COSTCO WHOLESALE CORP has weak liquidity. Currently, the Quick Ratio is 0.59 which shows a lack of
ability to cover short-term cash needs. The company's liquidity has increased from the same period last year,
indicating improving cash flow.
During the same period, stockholders' equity ("net worth") has increased by 13.56% from the same quarter last
year. Overall, the key liquidity measurements indicate that the company is in a position in which financial
difficulties could develop in the future.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
INCOME STATEMENT
Net Sales ($mil)
EBITDA ($mil)
EBIT ($mil)
Net Income ($mil)
Beta
0.52
Q4 FY14
35,523.00
NA
1,091.00
697.00
Q4 FY13
32,487.00
1,249.00
954.00
617.00
Q4 FY14
7,315.00
33,024.00
5,093.00
12,303.00
Q4 FY13
6,124.00
30,283.00
5,230.00
10,833.00
Q4 FY14
12.63%
NA
3.07%
3.41
6.23%
16.72%
Q4 FY13
13.43%
3.84%
2.94%
3.47
6.73%
18.82%
Q4 FY14
1.22
0.29
35.00
31.17
Q4 FY13
1.19
0.33
36.00
26.50
Q4 FY14
439
0.36
1.58
28.05
NA
1,799,229
Q4 FY13
437
0.31
1.40
24.80
NA
1,817,877
BALANCE SHEET
Cash & Equiv. ($mil)
Total Assets ($mil)
Total Debt ($mil)
Equity ($mil)
PROFITABILITY
Gross Profit Margin
EBITDA Margin
Operating Margin
Sales Turnover
Return on Assets
Return on Equity
DEBT
Current Ratio
Debt/Capital
Interest Expense
Interest Coverage
SHARE DATA
Shares outstanding (mil)
Div / share
EPS
Book value / share
Institutional Own %
Avg Daily Volume
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
PAGE 4
October 12, 2014
NASDAQ: COST
$1.42
1.10%
RATINGS HISTORY
Our rating for COSTCO WHOLESALE CORP has not
changed since 8/6/2009. As of 10/9/2014, the stock
was trading at a price of $128.41 which is 1.8%
below its 52-week high of $130.74 and 17.3% above
its 52-week low of $109.50.
BUY: $99.64
2 Year Chart
$56.3 Billion
$120
Price/Earnings
$110
2013
From
Buy
To
Buy
Price reflects the closing price as of the date listed, if available
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS
(as of 10/9/2014)
1
2
3
29.07% Hold - We do not believe this stock offers
conclusive evidence to warrant the purchase or sale of
shares at this time and that its likelihood of positive total
return is roughly in balance with the risk of loss.
20.25% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with
the risk involved too great to compensate for any
possible returns.
Research Contact: 212-321-5381
Sales Contact: 866-321-8726
4
5
Price/Projected Earnings
1
2
3
premium
4
5
2
3
premium
4
5
Price/Sales
1
2
premium
3
4
5
Price to Earnings/Growth
4
5
discount
1
2
3
premium
4
5
discount
COST 2.45
Peers 2.82
• Discount. The PEG ratio is the stock’s P/E divided
by the consensus estimate of long-term earnings
growth. Faster growth can justify higher price
multiples.
• COST trades at a discount to its peers.
Earnings Growth
1
2
3
4
lower
5
higher
COST 0.64
Peers 1.66
• Lower. Elevated earnings growth rates can lead to
capital appreciation and justify higher
price-to-earnings ratios.
• However, COST is expected to significantly trail its
peers on the basis of its earnings growth rate.
Sales Growth
discount
COST 0.50
Peers 0.56
• Discount. In the absence of P/E and P/B multiples,
the price-to-sales ratio can display the value
investors are placing on each dollar of sales.
• COST is trading at a discount to its industry on this
measurement.
3
COST NA
Peers 12.08
• Neutral. The P/CF ratio is the stock’s price divided
by the sum of the company's cash flow from
operations. It is useful for comparing companies
with different capital requirements or financing
structures.
• Ratio not available.
discount
COST 4.58
Peers 3.25
• Premium. A higher price-to-book ratio makes a
stock less attractive to investors seeking stocks
with lower market values per dollar of equity on the
balance sheet.
• COST is trading at a significant premium to its
peers.
2
premium
discount
COST 22.57
Peers 18.05
• Premium. A higher price-to-projected earnings ratio
than its peers can signify a more expensive stock
or higher future growth expectations.
peers.
1
1
Price/CashFlow
discount
COST 27.56
Peers 22.00
• Premium. A higher P/E ratio than its peers can
signify a more expensive stock or higher growth
expectations.
peers.
Price/Book
50.68% Buy - We believe that this stock has the
opportunity to appreciate and produce a total return of
more than 10% over the next 12 months.
TheStreet Ratings
14 Wall Street, 15th Floor
New York, NY 10005
www.thestreet.com
$128.41
$130
premium
MOST RECENT RATINGS CHANGES
Date
Price
Action
10/9/12
$99.64 No Change
52-Week Range
$109.50-$130.74
VALUATION
BUY. COSTCO WHOLESALE CORP's P/E ratio indicates a premium compared to an average of 22.00 for the
Food & Staples Retailing industry and a premium compared to the S&P 500 average of 18.70. Conducting a
second comparison, its price-to-book ratio of 4.58 indicates a significant premium versus the S&P 500
average of 2.58 and a premium versus the industry average of 3.25. The current price-to-sales ratio is well
below the S&P 500 average and is also below the industry average, indicating a discount. After reviewing
these and other key valuation criteria, COSTCO WHOLESALE CORP proves to trade at a premium to
investment alternatives within the industry.
$100
2012
Beta
0.52
1
2
3
lower
4
5
higher
COST 7.11
Peers 6.55
• Average. Comparing a company's sales growth to
its industry helps to determine if the company is
adding or losing market share.
• COST is keeping pace with its peers on the basis of
sales growth.
DISCLAIMER:
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided
via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as
other third-party data providers.
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided
for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or
other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
qualified securities professional, before you make any investment. None of the information contained in this report constitutes,
or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a
determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of
the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the
investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at
http://www.thestreet.com/static/about/terms-of-use.html.
PAGE 5

BUY COSTCO WHOLESALE CORP COST

Transcription

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