March 3, 2016
NASDAQ: COST
COSTCO WHOLESALE CORP
BUY
A+
A
A-
HOLD
B+
B
Annual Dividend Rate
$1.60
B-
C+
C
Annual Dividend Yield
1.04%
SELL
C-
D+
D
D-
Beta
0.56
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
E-
Market Capitalization
$67.2 Billion
Sector: Consumer Non-Discretionary
Weekly Price: (US$)
E+
F
BUY
RATING SINCE
TARGET PRICE
52-Week Range
$117.03-$169.73
Sub-Industry: Hypermarkets & Super Centers
SMA (50)
SMA (100)
08/06/2009
$182.23
Price as of 3/2/2016
$152.79
Source: S&P
1 Year
2 Years
190
180
TARGET
PRICE
$182.23
TARGET
TARGETPRICE
PRICE$182.23
$182.23
TARGET
PRICE
$182.23
170
160
STOCK PERFORMANCE (%)
3 Mo.
Price Change
-5.16
1 Yr.
3.27
3 Yr (Ann)
14.64
12 Mo.
1.41
1.98
2.14
3 Yr CAGR
4.38
5.65
5.45
150
140
GROWTH (%)
130
Last Qtr
2.60
-8.70
-8.15
Revenues
Net Income
EPS
RETURN ON EQUITY (%)
COST
Q2 2016
20.99
Q2 2015
22.18
Q2 2014
17.05
120
110
Rating History
BUY
Ind Avg
18.09
17.33
17.28
S&P 500
12.28
14.59
13.97
Volume in Millions
40
20
2015
0
2016
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
P/E COMPARISON
RECOMMENDATION
We rate COSTCO WHOLESALE CORP (COST) a BUY. This is based on the convergence of positive investment
measures, which should help this stock outperform the majority of stocks that we rate. The company's
strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with
reasonable debt levels by most measures, notable return on equity and solid stock price performance. We
feel its strengths outweigh the fact that the company shows low profit margins.
29.21
19.96
21.91
COST
Ind Avg
S&P 500
HIGHLIGHTS
The revenue growth came in higher than the industry average of 8.2%. Since the same quarter one year prior,
revenues slightly increased by 2.6%. This growth in revenue does not appear to have trickled down to the
company's bottom line, displayed by a decline in earnings per share.
EPS ANALYSIS¹ ($)
2014
2015
Q2 1.24
Q1 1.09
Q4 1.73
Q3 1.17
Q2 1.35
Q1 1.12
Q4 1.58
Q3 1.07
Q2 1.05
Q1 0.96
The current debt-to-equity ratio, 0.45, is low and is below the industry average, implying that there has been
successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick
ratio of 0.41 is very weak and demonstrates a lack of ability to pay short-term obligations.
COSTCO WHOLESALE CORP's earnings per share declined by 8.1% in the most recent quarter compared to
the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it
is poised for EPS growth in the coming year. During the past fiscal year, COSTCO WHOLESALE CORP
increased its bottom line by earning $5.37 versus $4.66 in the prior year. This year, the market expects an
improvement in earnings ($5.48 versus $5.37).
2016
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental
data items.
The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the
Food & Staples Retailing industry average. The net income has decreased by 8.7% when compared to the
same quarter one year ago, dropping from $598.00 million to $546.00 million.
Compared to where it was trading a year ago, COST's share price has not changed very much due to (a) the
relatively weak year-over-year performance of the overall market, (b) the company's stagnant earnings, and
(c) other mixed results. 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.
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) 2006-2015. All rights reserved.
Report Date: March 3, 2016
PAGE 1
March 3, 2016
NASDAQ: COST
COSTCO WHOLESALE CORP
Sector: Consumer Non-Discretionary Hypermarkets & Super Centers Source: S&P
Annual Dividend Rate
$1.60
Annual Dividend Yield
1.04%
PEER GROUP ANALYSIS
15%
REVENUE GROWTH AND EBITDA MARGIN*
RAD
PSMT
V
FA
AB
OR
WMT
IMKTA
CASY
R
VO
FA
LE
AB
-30%
UN
Revenue Growth (TTM)
CNCO
CBD
2%
10%
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 $484.4 Million and $212
Billion. Companies with NA or NM values do not
appear.
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization.
15%
REVENUE GROWTH AND EARNINGS YIELD
PSMT
V
FA
LE
WMT
CASY
R
VO
FA
LE
AB
-30%
UN
-5%
Price as of 3/2/2016
$152.79
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.
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.
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
CNCO
ANDE
52-Week Range
$117.03-$169.73
AB
OR
KR
COST
Revenue Growth (TTM)
RAD
CVS
Market Capitalization
$67.2 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 $14 million. Supermarkets rely on a distribution network
to survive as they do not have enough space to store goods. Specialty stores use merchandising to attract
foot traffic. Drugstores focus on prescription customers and sell over-the-counter (OTC) drugs, health and
beauty aids, greeting cards, photo-finishing services, and general merchandise.
LE
KR
CVS
Beta
0.56
CBD
25%
Earnings Yield (TTM)
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -25.7% and
11.6%. Companies with NA or NM values do not
appear.
Ticker
COST
RAD
ANDE
CNCO
IMKTA
CASY
KR
PSMT
WMT
CBD
CVS
Company Name
COSTCO WHOLESALE CORP
RITE AID CORP
ANDERSONS INC
CENCOSUD SA
INGLES MARKETS INC
CASEYS GENERAL STORES INC
KROGER CO
PRICESMART INC
WAL-MART STORES INC
CIA BRASILEIRA DE DISTRIB
CVS HEALTH CORP
Recent
Price ($)
152.79
7.97
27.91
6.65
34.74
105.89
40.65
78.00
66.21
10.84
98.63
Market
Cap ($M)
67,194
8,340
803
6,270
484
4,130
39,622
2,369
211,997
1,800
108,344
Price/
Earnings
29.21
4.22
NM
35.00
12.28
18.81
20.17
25.57
14.49
12.75
21.30
Net Sales
TTM ($M)
117,269.00
29,314.45
4,198.50
16,392.42
3,765.26
7,299.01
108,872.00
2,858.31
482,130.00
18,427.60
153,290.00
Net Income
TTM ($M)
2,309.00
1,934.88
-13.07
184.87
57.29
221.50
1,998.00
92.15
14,694.00
219.66
5,237.00
The peer group comparison is based on Major Hypermarkets & Super Centers companies of comparable size.
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) 2006-2015. All rights reserved.
Report Date: March 3, 2016
PAGE 2
March 3, 2016
NASDAQ: COST
COSTCO WHOLESALE CORP
Sector: Consumer Non-Discretionary Hypermarkets & Super Centers Source: S&P
Annual Dividend Rate
$1.60
Annual Dividend Yield
1.04%
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 provides dry and
institutionally packaged foods; snack foods, candy,
tobacco, alcoholic and nonalcoholic beverages, and
cleaning and institutional supplies; appliances,
electronics, health and beauty aids, hardware, and
garden and patio; meat, bakery, deli, and produce; and
apparel and small appliances. The company also
operates gas stations, pharmacies, food courts, optical
dispensing centers, photo processing centers, and
hearing-aid centers; and engages in the travel business.
In addition, it provides gold star (individual) and business
membership services. As of October 29, 2015, it operated
690 warehouses, including 482 warehouses in the United
States and Puerto Rico, 90 in Canada, 36 in Mexico, 27 in
the United Kingdom, 23 in Japan, 12 in Korea, 11 in
Taiwan, 7 in Australia, and 2 in Spain. Costco Wholesale
Corporation also sells its products through online. The
company was formerly known as Costco Companies, Inc.
Costco Wholesale Corporation was founded in 1976 and
is based in Issaquah, Washington.
COSTCO WHOLESALE CORP
999 Lake Drive
Issaquah, WA 98027
USA
Phone: 425-313-8100
http://www.costco.com
Employees: 205000
Beta
0.56
Market Capitalization
$67.2 Billion
52-Week Range
$117.03-$169.73
Price as of 3/2/2016
$152.79
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
4.5
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 80% 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
5.0
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 90% 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.
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) 2006-2015. All rights reserved.
Report Date: March 3, 2016
PAGE 3
March 3, 2016
NASDAQ: COST
COSTCO WHOLESALE CORP
Sector: Consumer Non-Discretionary Hypermarkets & Super Centers Source: S&P
Annual Dividend Rate
$1.60
Annual Dividend Yield
1.04%
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
1.28
5.48 E
6.20 E
Q2 FY16
2016(E)
2017(E)
Market Capitalization
$67.2 Billion
52-Week Range
$117.03-$169.73
Price as of 3/2/2016
$152.79
FINANCIAL ANALYSIS
COSTCO WHOLESALE CORP's gross profit margin for the second quarter of its fiscal year 2016 has decreased
when compared to the same period a year ago. Even though sales increased, the net income has decreased.
COSTCO WHOLESALE CORP has very weak liquidity. Currently, the Quick Ratio is 0.41 which clearly shows a
lack of ability to cover short-term cash needs. The company's liquidity decreased from the same period a
year ago, despite already having very weak liquidity to begin with. This would indicate deteriorating cash
flow.
During the same period, stockholders' equity ("net worth") has increased by 7.77% from the same quarter last
year. The key liquidity measurements indicate that the company is in a position in which financial difficulties
could develop in the near future.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
INCOME STATEMENT
Net Sales ($mil)
EBITDA ($mil)
EBIT ($mil)
Net Income ($mil)
Beta
0.56
Q2 FY16
28,170.00
NA
856.00
546.00
Q2 FY15
27,454.00
1,137.00
877.00
598.00
Q2 FY16
4,855.00
32,388.00
4,975.00
11,000.00
Q2 FY15
7,453.00
33,600.00
5,030.00
10,206.00
Q2 FY16
13.14%
NA
3.04%
3.62
7.12%
20.99%
Q2 FY15
13.90%
4.14%
3.19%
3.44
6.73%
22.18%
Q2 FY16
1.01
0.31
31.00
27.61
Q2 FY15
0.99
0.33
27.00
32.48
Q2 FY16
439
0.40
1.24
25.04
NA
2,612,488
Q2 FY15
440
5.36
1.35
23.19
NA
1,993,930
BALANCE SHEET
Cash & Equiv. ($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.
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) 2006-2015. All rights reserved.
Report Date: March 3, 2016
PAGE 4
March 3, 2016
NASDAQ: COST
COSTCO WHOLESALE CORP
Sector: Consumer Non-Discretionary Hypermarkets & Super Centers Source: S&P
Annual Dividend Rate
$1.60
Annual Dividend Yield
1.04%
RATINGS HISTORY
Our rating for COSTCO WHOLESALE CORP has not
changed since 8/6/2009. As of 3/2/2016, the stock
was trading at a price of $152.79 which is 10.0%
below its 52-week high of $169.73 and 30.6% above
its 52-week low of $117.03.
2 Year Chart
BUY: $116.80
$175
$150
$125
2014
2015
MOST RECENT RATINGS CHANGES
Date
Price
Action
2/28/14
$116.80 No Change
From
Buy
To
Buy
Price reflects the closing price as of the date listed, if available
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS
(as of 3/2/2016)
Beta
0.56
34.58% 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.
32.77% 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.
TheStreet Ratings
14 Wall Street, 15th Floor
New York, NY 10005
www.thestreet.com
Research Contact: 212-321-5381
Sales Contact: 866-321-8726
52-Week Range
$117.03-$169.73
Price as of 3/2/2016
$152.79
VALUATION
BUY. COSTCO WHOLESALE CORP's P/E ratio indicates a premium compared to an average of 19.96 for the
Food & Staples Retailing industry and a premium compared to the S&P 500 average of 21.91. For additional
comparison, its price-to-book ratio of 6.10 indicates a significant premium versus the S&P 500 average of 2.61
and a significant premium versus the industry average of 3.73. The current price-to-sales ratio is well below
the S&P 500 average, but above the industry average. Upon assessment of these and other key valuation
criteria, COSTCO WHOLESALE CORP proves to trade at a premium to investment alternatives within the
industry.
Price/Earnings
1
2
3
premium
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 14.32
Peers 4.00
• Premium. 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 significant premium to its peers.
Earnings Growth
1
2
3
4
lower
5
higher
COST 2.14
Peers 22.59
• 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 0.57
Peers 0.55
• Average. 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 valuation on par with its
industry on this measurement.
3
COST NA
Peers 11.10
• 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 6.10
Peers 3.73
• 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 24.64
Peers 19.24
• Premium. A higher price-to-projected earnings ratio
than its peers can signify a more expensive stock
or higher future growth expectations.
• COST is trading at a significant premium to its
peers.
1
1
Price/CashFlow
discount
COST 29.21
Peers 19.96
• Premium. A higher P/E ratio than its peers can
signify a more expensive stock or higher growth
expectations.
• COST is trading at a significant premium to its
peers.
Price/Book
32.65% 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.
Market Capitalization
$67.2 Billion
1
2
3
lower
4
5
higher
COST 1.41
Peers 9.29
• Lower. A sales growth rate that trails the industry
implies that a company is losing market share.
• COST significantly trails 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.
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) 2006-2015. All rights reserved.
Report Date: March 3, 2016
PAGE 5