DCF Studio

    COST · NMS · Consumer Defensive

    Costco Wholesale Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 278.00

    Market price

    USD 895.31

    Implied upside

    -68.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 1.8% of revenue against depreciation of 0.9%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 30.4x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 278.00-68.9%
    Exit multiple
    USD 576.55-35.6%
    Market price
    USD 895.31

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn4bn9bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 293.5bnUSD 313.0bnUSD 333.8bnUSD 356.0bnUSD 379.6bn+6.6%
    EBITUSD 10.4bnUSD 11.1bnUSD 11.9bnUSD 12.6bnUSD 13.5bn+6.6%
    NOPATUSD 8.2bnUSD 8.8bnUSD 9.4bnUSD 10.0bnUSD 10.6bn+6.6%
    Add depreciation & amortisationUSD 2.5bnUSD 2.7bnUSD 2.9bnUSD 3.1bnUSD 3.3bn+6.6%
    Less capital expenditureUSD -5.4bnUSD -5.7bnUSD -6.1bnUSD -6.5bnUSD -7.0bn+6.6%
    Less increase in working capitalUSD 1.2bnUSD 1.3bnUSD 1.4bnUSD 1.5bnUSD 1.6bn-6.6%
    Free cashflow to firmUSD 6.6bnUSD 7.0bnUSD 7.5bnUSD 8.0bnUSD 8.5bn+6.6%
    Discount factor0.95410.86870.79080.72000.6554-
    Present valueUSD 6.3bnUSD 6.1bnUSD 5.9bnUSD 5.8bnUSD 5.6bn-2.9%
    Present Value Of The ForecastUSD 29.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.903Reported 0.855, pulled toward 1.0 (Blume)
    Cost of equity9.96%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 397.1bn98.0% of capital
    Total debtUSD 8.2bn2.0% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.84%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 278.00

    75% of EV

    Forecast FCFF, final year
    USD 8.5bn
    Capex at depreciation, working capital in reinvestment
    USD 10.6bn
    Less reinvestment at g/ROIC (10.8% of NOPAT)
    USD -1.2bn
    Capitalised
    USD 9.5bn
    ROIC (reported)
    23.1%
    Terminal value, undiscounted
    USD 132.6bn
    Terminal value, discounted
    USD 86.9bn
    Enterprise value
    USD 116.5bn
    Less net debt
    USD -7.1bn
    Equity value
    USD 123.7bn

    Exit at 20.0x EBITDA

    Value per shareUSD 576.55

    88% of EV

    Terminal value, undiscounted
    USD 335.2bn
    Terminal value, discounted
    USD 219.7bn
    Enterprise value
    USD 249.3bn
    Less net debt
    USD -7.1bn
    Equity value
    USD 256.5bn

    Spread between methods: 70%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.84%340.79357.53377.34401.16430.38
    8.84%295.52306.80319.80334.97352.91
    9.84%261.18269.07278.00288.17299.90
    10.84%234.25239.93246.26253.35261.36
    11.84%212.58216.76221.36226.44232.09

    Outlined: this model. Green text: above today's price of 895.31. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year6.6%35.7%+29.0pp
    EBIT margin3.6%11.4%+7.9pp
    Discount rate9.8%4.7%-5.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.