COST Stock Study (11-1-25)

Posted by Mark on February 14, 2025 at 07:39 | Last modified: November 3, 2025 08:05

I recently did a stock study on Costco Wholesale Corp. (COST, $911.45).

M* writes:

     > Founded in 1983, Costco Wholesale now operates a global chain of
     > membership-based warehouse clubs, delivering high-quality goods
     > and services at consistently low prices. As of its most recent
     > fiscal year, Costco operated approximately 910 warehouses,
     > serving more than 80 million members across its three geographic
     > segments: Costco US (approximately 73% of total revenue),
     > Costco Canada (13%), and Costco International (14%).Costco’s
     > core value proposition—-quality products at unbeatable prices—-has
     > yielded consistently strong member renewal rates (93% in the US
     > and Canada and nearly 90% internationally). About 55% of Costco’s
     > fiscal 2025 revenue came from its grocery offerings, and another
     > 25% from general merchandise.

Over the past decade, the mega-size ( > $50B annual revenue) company has grown sales and EPS at annualized rates of 10.4% and 15.1%, respectively (fiscal year ends Aug 31). Lines are up, straight, and parallel with no exceptions [unless one breaks out the magnifying glass, perhaps]. Value Line (VL) gives an Earnings Predictability score of 100.

Over the past decade, PTPM trails peer and industry averages despite increasing from 3.0% (’16) to 3.9% (’25) with a last-5-year mean of 3.6%. ROE leads peer and industry averages while increasing from 20.3% (’16) to 29.8% (’25) with a last-5-year mean of 29.9%. Debt-to-Capital is less than peer and industry averages while decreasing from 29.9% (’16) to 21.9% (’25) with a last-5-year mean of 28.2%.

Quick Ratio is only 0.5 but Interest Coverage is 71 per M* who assigns “Wide” Economic Moat, gives “Exemplary” rating for Capital Allocation, and an A grade for Financial Health (per BI website). VL gives an A+ grade for Financial Strength.

Wow.

With regard to sales growth:

• YF projects YOY 7.9% and 7.5% for ’26 and ’27, respectively (based on 27 analysts).
• Zacks projects YOY 7.7% and 8.1% for ’26 and ’27, respectively (8 analysts).
• VL projects 6.5% annualized growth from ’25-’29.
• CFRA projects 7.8% YOY and 7.7% per year for ’26 and ’25-’27.
• M* provides a 2-year CAGR of 7.9% and projects 7.4% annualized for the next 5 years in its analyst note.

My 6.0% forecast is below the range.

With regard to EPS growth:

• MarketWatch projects annualized growth of 10.5% and 10.8% for ’25-’27 and ’25-’28 (based on 35 analysts).
• Nasdaq.com projects 10.1% and 9.3% per year for ’26-’28 and ’26-’29 [14, 3, and 1 analyst(s) for ’26, ’28 and ’29].
• Seeking Alpha projects 4-year annualized growth of 8.7%.
• Finviz gives ACE 5-year annualized growth of 10.6% (11).
• Argus projects 5-year annualized growth of 12.0%.
• LSEG gives LTG estimate of 8.8%.
• YF projects YOY 10.4% and 10.2% for ’26 and ’27, respectively (30).
• Zacks projects YOY 11.0% and 9.1% for ’26 and ’27 (9) along with 5-year annualized growth of 8.3%.
• VL projects 9.3% annualized growth from ’25-’29.
• CFRA projects 10.7% YOY and per year for ’26 and ’25-’27 along with a 3-year CAGR of 11.0%.
• M* projects long-term annualized growth of 8.9%.

My 7.0% forecast is below the long-term-estimate range (mean of seven: 9.5%). Initial value is ’25 EPS of $18.21/share.

My Forecast High P/E is 36.0. Over last 10 years, high P/E rises from 31.8 (’16) to 59.2 (’25) for a last-5-year mean of 48.5 and a last-5-year-mean average P/E of 41.3. I am toward lower end of the range [’16, ’17 (30.1), and ’18 (32.9) are lower].

My Forecast Low P/E is 27.0. Over the last 10 years, low P/E rises from 25.9 (’16) to 47.6 (’21) with a last-5-year mean of 34.0. I am forecasting the lowest value since 2019.

My Low Stock Price Forecast (LSPF) is $635.00. Default ($491.70) based on initial value given above seems unreasonably low at 46.1% (43.3%) less than the previous close (52-week low). My [arbitrary] selection is 30.3% (26.8%) less, respectively.

Over the past decade, Payout Ratio (PR) decreases from 31.9% in ’16 to 27.0% in ’25 with a last-5-year mean of 26.5%. I am forecasting below the range at 25.0%.

These inputs land COST in the SELL zone with a U/D ratio of 0. Total Annualized Return (TAR) is 0.9%.

PAR (using Forecast Average—not High—P/E) of NEGATIVE 1.7% is unthinkable for an investment candidate. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead but even that is far below the risk-free rate (T-bills).

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 322 studies (my study and 114 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 7.2%, 8.8%, 45.2, 30.5, and 27.1%, respectively. I am lower across the board. VL’s projected average annual P/E of 45.0 is greater than MS (37.9) and much greater than mine (31.5).

MS high / low EPS are $27.47 / $17.52 versus my $25.54 / $18.21 (per share). My high EPS is less due to a lower growth rate. VL’s high EPS is in the middle at $26.00.

MS LSPF of $619.10 implies a Forecast Low P/E of 35.3: greater than the above-stated 30.5. MS LSPF is 15.9% greater than the default $17.52/share * 30.5 = $534.56 resulting in more aggressive zoning. MS is still 2.5% less than mine, however.

I think MOS is solid in this study because my inputs are near or below analyst/MS estimates and historical ranges [my P/E range may even be unreasonably low]. Also consistent is MS TAR (6.8%) exceeding mine by 5.9%/year.

With regard to valuation, PEG is 3.3 and 6.7 per Zacks and my projected P/E, respectively: extremely overvalued (5.5 per M*). Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 1.03.

For existing shareholders, I’m giving a HOLD rating because double-digit [historical] sales growth can drive stock price should that continue into the future.

Per U/D, COST is a BUY under $706/share. BI TAR criterion is met [919.4 / ((14.17 / 100 ) +1 ) ^ 5] ~ $474 with a forecast high price ~$919.

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