Costco Wholesale Corp Valuation – March 2019 #COST

Company Profile (excerpt from Reuters): Costco Wholesale Corporation, incorporated on May 12, 1987, is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of August 28, 2016, the Company operated 715 warehouses across the world. The Company’s average warehouse space is approximately 144,000 square feet. The Company’s warehouses on average operate on a seven-day, 70-hour week. The Company offers merchandise in various categories, which include foods (including dry foods, packaged foods and groceries); sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies); hardlines (including appliances, electronics, health and beauty aids, hardware, and garden and patio); fresh foods (including meat, produce, deli and bakery); softlines (including apparel and small appliances), and other (including gas stations and pharmacy).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of COST – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $103,811,680,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.96 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 106.73% Pass
6. Moderate PEmg Ratio PEmg < 20 34.96 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.36 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.96 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.98 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.75
MG Growth Estimate 6.57%
MG Value $146.16
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $97.90
MG Value based on 0% Growth $57.39
Market Implied Growth Rate 13.23%
Current Price $236.07
% of Intrinsic Value 161.52%

Costco Wholesale Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.69 in 2015 to an estimated $6.75 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.23% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Costco Wholesale Corporation revealed the company was trading above its Graham Number of $71.28. The company pays a dividend of $2.14 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 34.96, which was above the industry average of 27.69. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.75.

Costco Wholesale Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.75
Graham Number $71.28
PEmg 34.96
Current Ratio 0.96
PB Ratio 7.36
Current Dividend $2.14
Dividend Yield 0.91%
Number of Consecutive Years of Dividend Growth 15

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 2/1/2019
Total Current Assets $21,648,000,000
Total Current Liabilities $22,450,000,000
Long-Term Debt $4,794,000,000
Total Assets $42,799,000,000
Intangible Assets $0
Total Liabilities $28,616,000,000
Shares Outstanding (Diluted Average) 442,337,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.73
Aug2018 $7.09
Aug2017 $6.08
Aug2016 $5.33
Aug2015 $5.37
Aug2014 $4.65
Aug2013 $4.63
Aug2012 $3.89
Aug2011 $3.30
Aug2010 $2.92
Aug2009 $2.47
Aug2008 $2.89
Aug2007 $2.37
Aug2006 $2.30
Aug2005 $2.18
Aug2004 $1.85
Aug2003 $1.53
Aug2002 $1.48
Aug2001 $1.29
Aug2000 $1.35
Aug1999 $0.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.75
Aug2018 $6.08
Aug2017 $5.45
Aug2016 $5.02
Aug2015 $4.69
Aug2014 $4.20
Aug2013 $3.79
Aug2012 $3.28
Aug2011 $2.92
Aug2010 $2.68
Aug2009 $2.52
Aug2008 $2.47
Aug2007 $2.19
Aug2006 $2.02
Aug2005 $1.81
Aug2004 $1.58
Aug2003 $1.40

Recommended Reading:

Other ModernGraham posts about the company

Costco Wholesale Corp Valuation – June 2018 $COST
Costco Wholesale Corp Valuation – September 2017 $COST
Costco Wholesale Corp Valuation – July 2016 $COST
58 Companies in the Spotlight This Week – 1/31/15
Costco Wholesale Corporation Annual Valuation – 2015 $COST

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Fleetcor Technologies Inc Valuation – January 2019 $FLT

Company Profile (excerpt from Reuters): FleetCor Technologies, Inc., incorporated on February 3, 1998, is a provider of workforce payment products. The Company offers fuel card payments product solutions, corporate payments products, toll products, lodging cards and gift cards. The Company operates through two segments: North America and International. The Company’s products are sold to businesses, retailers, oil companies and marketers, and government entities. The Company’s payment programs enable its customers to manage and control their commercial payments, card programs and employee spending. The Company also provides a suite of fleet related and workforce payment products, including mobile telematics services, fleet maintenance management and employee benefit and transportation related payments. As of December 31, 2016, its products were used in 53 countries around the world, with its primary geographies in the United States, Brazil and the United Kingdom.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of FLT – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,931,247,424 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.24 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -43.58% Fail
6. Moderate PEmg Ratio PEmg < 20 105.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 14.96 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.12 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.76
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $25.46
MG Value based on 0% Growth $14.93
Market Implied Growth Rate 48.63%
Current Price $185.72
% of Intrinsic Value N/A

FleetCor Technologies, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.21 in 2014 to an estimated $1.76 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 48.63% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into FleetCor Technologies, Inc. revealed the company was trading above its Graham Number of $29.9. The company pays a dividend of $0.76 per share, for a yield of 0.4% Its PEmg (price over earnings per share – ModernGraham) was 105.76, which was above the industry average of 25.74. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.95.

FleetCor Technologies, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.95
Graham Number $29.90
PEmg 105.76
Current Ratio 2.24
PB Ratio 14.96
Current Dividend $0.76
Dividend Yield 0.41%
Number of Consecutive Years of Dividend Growth 11

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $2,324,667,000
Total Current Liabilities $1,040,080,000
Long-Term Debt $1,436,746,000
Total Assets $4,605,064,000
Intangible Assets $1,399,632,000
Total Liabilities $2,974,337,000
Shares Outstanding (Diluted Average) 131,350,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.13
Dec2017 $0.02
Dec2016 $1.01
Dec2015 $1.93
Dec2014 $3.72
Dec2013 $3.41
Dec2012 $2.84
Dec2011 $2.55
Dec2010 $2.29
Dec2009 $2.53
Dec2008 $2.58
Dec2007 $1.49
Dec2006 $0.67
Dec2005 $0.10
Dec2004 $0.16
Dec2003 $0.27
Dec2002 $0.16
Dec2001 -$0.14
Dec2000 $0.12
Dec1999 $0.11
Dec1998 $0.41

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.76
Dec2017 $1.39
Dec2016 $2.24
Dec2015 $2.87
Dec2014 $3.21
Dec2013 $2.88
Dec2012 $2.59
Dec2011 $2.41
Dec2010 $2.20
Dec2009 $1.93
Dec2008 $1.42
Dec2007 $0.73
Dec2006 $0.33
Dec2005 $0.14
Dec2004 $0.15
Dec2003 $0.13
Dec2002 $0.08

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Costco Wholesale Corp Valuation – June 2018 $COST

Company Profile (excerpt from Reuters): Costco Wholesale Corporation, incorporated on May 12, 1987, is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of August 28, 2016, the Company operated 715 warehouses across the world. The Company’s average warehouse space is approximately 144,000 square feet. The Company’s warehouses on average operate on a seven-day, 70-hour week. The Company offers merchandise in various categories, which include foods (including dry foods, packaged foods and groceries); sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies); hardlines (including appliances, electronics, health and beauty aids, hardware, and garden and patio); fresh foods (including meat, produce, deli and bakery); softlines (including apparel and small appliances), and other (including gas stations and pharmacy).

COST Chart

COST data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of COST – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $89,414,017,639 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.01 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 107.83% Pass
6. Moderate PEmg Ratio PEmg < 20 34.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.23 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.01 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 23.02 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.93
MG Growth Estimate 6.19%
MG Value $123.84
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $85.99
MG Value based on 0% Growth $50.41
Market Implied Growth Rate 12.93%
Current Price $203.76
% of Intrinsic Value 164.53%

Costco Wholesale Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.2 in 2014 to an estimated $5.93 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.93% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Costco Wholesale Corporation revealed the company was trading above its Graham Number of $60.63. The company pays a dividend of $1.9 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 34.36, which was below the industry average of 37.1, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.9.

Costco Wholesale Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$16.90
Graham Number $60.63
PEmg 34.36
Current Ratio 1.01
PB Ratio 7.23
Current Dividend $1.90
Dividend Yield 0.93%
Number of Consecutive Years of Dividend Growth 14

 

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 5/1/2018
Total Current Assets $19,693,000,000
Total Current Liabilities $19,411,000,000
Long-Term Debt $6,492,000,000
Total Assets $39,605,000,000
Intangible Assets $0
Total Liabilities $27,158,000,000
Shares Outstanding (Diluted Average) 441,715,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.65
Aug2017 $6.08
Aug2016 $5.33
Aug2015 $5.37
Aug2014 $4.65
Aug2013 $4.63
Aug2012 $3.89
Aug2011 $3.30
Aug2010 $2.92
Aug2009 $2.47
Aug2008 $2.89
Aug2007 $2.37
Aug2006 $2.30
Aug2005 $2.18
Aug2004 $1.85
Aug2003 $1.53
Aug2002 $1.48
Aug2001 $1.29
Aug2000 $1.35
Aug1999 $0.87
Aug1998 $1.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.93
Aug2017 $5.45
Aug2016 $5.02
Aug2015 $4.69
Aug2014 $4.20
Aug2013 $3.79
Aug2012 $3.28
Aug2011 $2.92
Aug2010 $2.68
Aug2009 $2.52
Aug2008 $2.47
Aug2007 $2.19
Aug2006 $2.02
Aug2005 $1.81
Aug2004 $1.58
Aug2003 $1.40
Aug2002 $1.29

Recommended Reading:

Other ModernGraham posts about the company

Costco Wholesale Corp Valuation – September 2017 $COST
Costco Wholesale Corp Valuation – July 2016 $COST
58 Companies in the Spotlight This Week – 1/31/15
Costco Wholesale Corporation Annual Valuation – 2015 $COST
14 Companies in the Spotlight This Week – 1/18/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Costco Wholesale Corp Valuation – September 2017 $COST

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Costco Wholesale Corp (COST) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Costco Wholesale Corporation is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of August 28, 2016, the Company operated 715 warehouses across the world. The Company’s average warehouse space is approximately 144,000 square feet. The Company’s warehouses on average operate on a seven-day, 70-hour week. The Company offers merchandise in various categories, which include foods (including dry foods, packaged foods and groceries); sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies); hardlines (including appliances, electronics, health and beauty aids, hardware, and garden and patio); fresh foods (including meat, produce, deli and bakery); softlines (including apparel and small appliances), and other (including gas stations and pharmacy).

COST Chart

COST data by YCharts

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[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of COST – September 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $69,797,743,701 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.81 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 102.66% Pass
6. Moderate PEmg Ratio PEmg < 20 29.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.09 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.81 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -0.68 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $5.45
MG Growth Estimate 6.55%
MG Value $117.69
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $79.03
MG Value based on 0% Growth $46.33
Market Implied Growth Rate 10.35%
Current Price $159.14
% of Intrinsic Value 135.22%

Costco Wholesale Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.79 in 2013 to an estimated $5.45 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 10.35% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Costco Wholesale Corporation revealed the company was trading above its Graham Number of $61.46.  The company pays a dividend of $1.7 per share, for a yield of 1.1%  Its PEmg (price over earnings per share – ModernGraham) was 29.2, which was below the industry average of 48.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.22.

Costco Wholesale Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.22
Graham Number $61.46
PEmg 29.20
Current Ratio 0.81
PB Ratio 7.09
Current Dividend $1.70
Dividend Yield 1.07%
Number of Consecutive Years of Dividend Growth 13

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 5/1/2017
Total Current Assets $17,256,000,000
Total Current Liabilities $21,394,000,000
Long-Term Debt $2,821,000,000
Total Assets $35,631,000,000
Intangible Assets $0
Total Liabilities $25,733,000,000
Shares Outstanding (Diluted Average) 441,056,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.08
Aug2016 $5.33
Aug2015 $5.37
Aug2014 $4.65
Aug2013 $4.63
Aug2012 $3.89
Aug2011 $3.30
Aug2010 $2.92
Aug2009 $2.47
Aug2008 $2.89
Aug2007 $2.37
Aug2006 $2.30
Aug2005 $2.18
Aug2004 $1.85
Aug2003 $1.53
Aug2002 $1.48
Aug2001 $1.29
Aug2000 $1.35
Aug1999 $0.87
Aug1998 $1.02
Aug1997 $0.74

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.45
Aug2016 $5.02
Aug2015 $4.69
Aug2014 $4.20
Aug2013 $3.79
Aug2012 $3.28
Aug2011 $2.92
Aug2010 $2.68
Aug2009 $2.52
Aug2008 $2.47
Aug2007 $2.19
Aug2006 $2.02
Aug2005 $1.81
Aug2004 $1.58
Aug2003 $1.40
Aug2002 $1.29
Aug2001 $1.15

Recommended Reading:

Other ModernGraham posts about the company

58 Companies in the Spotlight This Week – 1/31/15
Costco Wholesale Corporation Annual Valuation – 2015 $COST
14 Companies in the Spotlight This Week – 1/18/14
ModernGraham Valuation: Costco Wholesale Corp (COST)

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Taubman Centers Inc Valuation – Initial Coverage $TCO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Taubman Centers Inc (TCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Taubman Centers, Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company’s segment is focused on owning, developing and managing regional shopping centers. The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is majority-owned partnership subsidiary of the Company that owns direct or indirect interests in all of its real estate properties. The Company owns, leases, acquires, disposes of, develops, expands and manages regional and super-regional shopping centers and interests therein. Its owned portfolio of operating centers as of December 31, 2016 consisted of 23 urban and suburban shopping centers operating in 11 the United States states, Puerto Rico, South Korea, and China. The consolidated businesses consist of shopping centers and entities that are controlled by ownership or contractual agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its subsidiaries (Taubman Asia).

TCO Chart

TCO data by YCharts

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ModernGraham Valuation of TCO – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,954,692,652 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -301.91% Fail
5. Moderate PEmg Ratio PEmg < 20 21.97 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 54.94 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.96
MG Growth Estimate 13.34%
MG Value $104.29
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $42.98
MG Value based on 0% Growth $25.19
Market Implied Growth Rate 6.74%
Current Price $65.13
% of Intrinsic Value 62.45%

Taubman Centers, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.57 in 2013 to an estimated $2.96 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Taubman Centers, Inc. revealed the company was trading above its Graham Number of $4.3. The company pays a dividend of $2.38 per share, for a yield of 3.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.97, which was below the industry average of 51.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Taubman Centers, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Graham Number $4.30
PEmg 21.97
PB Ratio 54.94
Dividend Yield 3.65%
TTM Dividend $2.38
Number of Consecutive Years of Dividend Growth 8

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $3,255,512,000
Total Assets $4,010,912,000
Intangible Assets $0
Total Liabilities $3,938,832,000
Shares Outstanding (Diluted Average) 60,799,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.69
Dec2016 $1.77
Dec2015 $1.76
Dec2014 $13.47
Dec2013 $1.71
Dec2012 $1.37
Dec2011 $3.03
Dec2010 $0.86
Dec2009 -$1.31
Dec2008 -$1.64
Dec2007 $0.90
Dec2006 $0.40
Dec2005 $0.87
Dec2004 -$0.10
Dec2003 $0.41
Dec2002 -$0.05
Dec2001 -$0.18
Dec2000 $1.64
Dec1999 $0.16
Dec1998 -$0.06
Dec1997 $0.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.96
Dec2016 $4.07
Dec2015 $4.91
Dec2014 $5.68
Dec2013 $1.57
Dec2012 $1.15
Dec2011 $0.82
Dec2010 -$0.24
Dec2009 -$0.58
Dec2008 -$0.12
Dec2007 $0.59
Dec2006 $0.40
Dec2005 $0.33
Dec2004 $0.15
Dec2003 $0.32
Dec2002 $0.28
Dec2001 $0.43

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Costco Wholesale Corp Valuation – July 2016 $COST

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Costco Wholesale Corp (COST) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Costco Wholesale Corporation (Costco) is engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, United Kingdom (U.K.), Mexico, Japan, Australia, Spain, and through majority-owned subsidiaries in Taiwan and Korea. The Company operated 663 membership warehouses and an average warehouse is approximately 144,000 square feet. The Company’s warehouses generally operate on a seven-day, 69-hour week. The Company’s product categories include Food, Sundries, Hardlines, Fresh Food, Softlines, Ancillary and Other. The Company’s online business provides products, which include services, such as photo processing, pharmacy, travel, business delivery, and membership services.

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ModernGraham Valuation of COST – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $72,667,053,902 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.97 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 97.41% Pass
6. Moderate PEmg Ratio PEmg < 20 33.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.38 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.97 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -8.58 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

COST value chart July 2016

EPSmg $4.99
MG Growth Estimate 7.78%
MG Value $119.95
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $72.29
MG Value based on 0% Growth $42.38
Market Implied Growth Rate 12.44%
Current Price $166.41
% of Intrinsic Value 138.73%

Costco Wholesale Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.28 in 2012 to an estimated $4.99 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.44% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Costco Wholesale Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

COST charts July 2016

Net Current Asset Value (NCAV) -$13.21
Graham Number $55.63
PEmg 33.38
Current Ratio 0.97
PB Ratio 6.38
Current Dividend $1.65
Dividend Yield 0.99%
Number of Consecutive Years of Dividend Growth 13

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ModernGraham tagged articles Morningstar
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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 5/1/2016
Total Current Assets $16,542,000,000
Total Current Liabilities $16,999,000,000
Long-Term Debt $3,921,000,000
Total Assets $33,873,000,000
Intangible Assets $0
Total Liabilities $22,368,000,000
Shares Outstanding (Diluted Average) 441,066,000

Earnings Per Share History

Next Fiscal Year Estimate $5.24
Aug2015 $5.37
Aug2014 $4.65
Aug2013 $4.63
Aug2012 $3.89
Aug2011 $3.30
Aug2010 $2.92
Aug2009 $2.47
Aug2008 $2.89
Aug2007 $2.37
Aug2006 $2.30
Aug2005 $2.18
Aug2004 $1.85
Aug2003 $1.53
Aug2002 $1.48
Aug2001 $1.29
Aug2000 $1.35
Aug1999 $0.87
Aug1998 $1.02
Aug1997 $0.73
Aug1996 $0.61

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.99
Aug2015 $4.69
Aug2014 $4.20
Aug2013 $3.79
Aug2012 $3.28
Aug2011 $2.92
Aug2010 $2.68
Aug2009 $2.52
Aug2008 $2.47
Aug2007 $2.19
Aug2006 $2.02
Aug2005 $1.81
Aug2004 $1.58
Aug2003 $1.40
Aug2002 $1.29
Aug2001 $1.15
Aug2000 $1.02

Recommended Reading:

Other ModernGraham posts about the company

58 Companies in the Spotlight This Week – 1/31/15
Costco Wholesale Corporation Annual Valuation – 2015 $COST
14 Companies in the Spotlight This Week – 1/18/14
ModernGraham Valuation: Costco Wholesale Corp (COST)

Other ModernGraham posts about related companies

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Aaron’s Inc Valuation – May 2016 $AAN
Nordstrom Inc Valuation – May 2016 $JWN
Tractor Supply Company Valuation – May 2016 $TSCO
Fossil Group Inc Stock Valuation – February 2016 $FOSL
TJX Companies Inc Valuation – February 2016 Update $TJX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Costco Wholesale Corporation Annual Valuation – 2015 $COST

costco_wholesale_214_64Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Costco Wholesale Corporation (COST) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Costco Wholesale Corporation (Costco) is engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, United Kingdom (U.K.), Mexico, Japan, Australia, Spain, and through majority-owned subsidiaries in Taiwan and Korea. The Company operated 663 membership warehouses and an average warehouse is approximately 144,000 square feet. The Company’s warehouses generally operate on a seven-day, 69-hour week. The Company’s product categories include Food, Sundries, Hardlines, Fresh Food, Softlines, Ancillary and Other. The Company’s online business provides products, which include services, such as photo processing, pharmacy, travel, business delivery, and membership services.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $142.05
MG Value $116.22
MG Opinion Overvalued
Value Based on 3% Growth $66.19
Value Based on 0% Growth $38.80
Market Implied Growth Rate 11.31%
NCAV -$7.01
PEmg 31.12
Current Ratio 1.20
PB Ratio 5.08

Balance Sheet – November 2014

Current Assets $19,156,000,000
Current Liabilities $16,019,000,000
Total Debt $5,034,000,000
Total Assets $34,613,000,000
Intangible Assets $0
Total Liabilities $22,254,000,000
Outstanding Shares 442,200,000

Earnings Per Share

2015 (estimate) $4.98
2014 $4.65
2013 $4.63
2012 $3.89
2011 $3.30
2010 $2.92
2009 $2.47
2008 $2.89
2007 $2.37
2006 $2.30
2005 $2.18

Earnings Per Share – ModernGraham

2015 (estimate) $4.56
2014 $4.20
2013 $3.79
2012 $3.28
2011 $2.92
2010 $2.68

Dividend History

Conclusion:

Costco Wholesale Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.92 in 2011 to an estimated $4.56 for 2015.  This level of growth does not support the market’s implied estimate of 11.31% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

Be sure to check out previous ModernGraham valuations of Costco Wholesale Corporation (COST) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Costco Wholesale Corporation (COST)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Costco Wholesale Corporation (COST) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

ModernGraham Valuation: Costco Wholesale Corp (COST)

moneyCompany Profile (obtained from Google Finance): Costco Wholesale Corporation (Costco) with its subsidiaries is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, and through majority owned subsidiaries in Taiwan and Korea. Costco buys the majority of its merchandise directly from manufacturers and route it to a cross-docking consolidation point (depot) or directly to its warehouses. The Company’s depots receive container-based shipments from manufacturers and reallocate these goods for shipment to its individual warehouses, generally in less than 24hours. Costco’s typical warehouse format averages approximately 143,000 square feet. The Company’s warehouses generally operate on a seven-day, 69-hour week. The Company carries an average of approximately 3,300 to 3,800 active stock keeping units (SKUs) per warehouse in its core warehouse business. Many consumable products are offered for sale in case, carton, or multiple-pack quantities only.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $109.69
MG Opinion Fairly Valued
Value Based on 3% Growth $61.39
Value Based on 0% Growth $35.99
Market Implied Growth Rate 9.67%
NCAV -$8.24
PEmg 27.83
Current Ratio 1.17
PB Ratio 4.62

Balance Sheet – 9/30/2013 

Current Assets $17,473,000,000
Current Liabilities $14,933,000,000
Total Debt $4,987,000,000
Total Assets $32,319,000,000
Intangible Assets $0
Total Liabilities $21,098,000,000
Outstanding Shares 439,720,000

Earnings Per Share

2014 (estimate) $4.76
2013 $4.63
2012 $3.89
2011 $3.30
2010 $2.92
2009 $2.47
2008 $2.89
2007 $2.37
2006 $2.30
2005 $2.18
2004 $1.85
2003 $1.53

Earnings Per Share – ModernGraham 

2014 (estimate) $4.23
2013 $3.79
2012 $3.28
2011 $2.92
2010 $2.68
2009 $2.52

Conclusion:

Costco Wholesale Corp is a great place to shop at, but not such a great company to invest in presently.  The company does not qualify for the Defensive Investor because its current ratio is too low, and it is currently trading at high PEmg and PB ratios.  The Enterprising Investor also does not like Costco right now because the company has too much debt relative to its current assets.  As a result, value investors may seek to find other opportunities, beginning with a review of ModernGraham’s valuation of Target Corp (TGT).  From a valuation perspective, the company does appear to be trading at a fair price.  The EPSmg (normalized earnings) have grown from $2.52 in 2009 to an estimated $4.23 for 2014, and the growth has been consistent over the time period.  The market is currently implying a growth rate estimate of 9.67%, which is in line with what has been seen historically.  As a result, the company appears to be fairly valued.

What do you think?  Do you agree that Costco Wholesale Corp is fairly valued?  What would be your assessment?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Costco Wholesale Corp (COST) at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

Company Review – Costco Wholesale Corporation

Company Profile: Costco Wholesale Corporation (COST)

Costco Wholesale Corporation (Costco) operates membership warehouses that offer a selection of nationally branded and private-label products in a range of merchandise categories in self-service warehouse facilities. The Company buys the majority of its merchandise directly from manufacturers and routes it to a cross-docking consolidation point (depot) or directly to its warehouses. Costco’s depots receive container-based shipments from manufacturers and reallocate these goods for combined shipment to its individual warehouses, generally in less than 24 hours. As of September 3, 2006, the Company operated 487 warehouses, including 354 in the United States and four in Puerto Rico, 68 in Canada, 18 in the United Kingdom, five in Korea, four in Taiwan, five in Japan and 29 warehouses in Mexico (through Costco Mexico, a 50%-owned joint venture).
 

Business and Management Review

1) Is the business simple and understandable?

Costco is in the business of selling wholesaled goods to consumers at discounted prices over department stores. The company buys the merchandise from the manufacturer at a significantly lower price due to the volume of purchase. They then pass along the savings to the consumers who must pay a membership due(s) in order to shop from the “club”. The concept behind the business is to sell in extremely large volumes due to the low item by item margin.

2) Does the business have a consistent operating history?

Over the past five years, Costco has experienced overall positive growth even during periods of extensive expansion of the company. Earnings have fluctuated somewhat during key years of heavy expansion; however, we feel that this is necessary for the company to continue to be the powerhouse wholesaler they currently are.  

3) Does the business have favorable long term prospects?

The main competitor for Costco is Wal-Marts’ Sam’s Club division. We feel that Costco offers a greater value to their consumers and will continue to see market share increase in their favor. Costco enjoys remarkable brand awareness for a retailer and the consumer enjoys the treasure hunt atmosphere of possible savings. These factors will drive Costco to become more efficient and profitability to increase as well.  

4) Is management rationale?

We are impressed with the board of directors and the vast array of individuals it contains. We feel that the board is acting in the best interests of shareholders, and thus have management that as well is acting in the same manor. We see no reason to have concern that management is out of line in any foreseeable detail.

5) Is management candid with its shareholders?

Costco has a detailed investor relations page that has the typical detailed information one would expect from a company of this size. The page is easily found on the company’s website, and the content provided does not lack of any material information.

6) Does management resist the institutional imperative?

Given the diversity on the board of directors and the checks and balances that are in place, we see no reason to have any concern on this point. We trust that management is acting in the best interests of the shareholders of Costco.

Financial and Value Review
 

Defensive:

1) Size of firm

Costco passes the market capitalization test, with the company having a market size of over $24 billion.

2) Strong financial condition

The current ratio of the company falls below 2 at 1.22, therefore failing this test as well.

3) Earnings stability

Costco has enjoyed positive net income for the past ten years and passes this test for the defensive investor.

4) Dividend record

The company has failed to pay consistent dividends for the past ten years and fails this test.

5) Earnings growth

Costco has increased its earnings per share by one third over the past ten years, and therefore, passes this test.

6) Price to earnings analysis

The P/E ratio for Costco is roughly 22 and falls above the benchmark of 20 and as such fails this test.

7) Price to assets analysis

The P/B ratio is 2.6 and fails the test of being below 2.5.

Conclusion:

Costco fails the test of being suitable for the defensive investor with only a score of three. Although, two of the tests Costco barely failed and this should be noted.

Enterprising:

1) Strong financial condition

The current ratio is below 1.5 and therefore fails this test.

2) Earnings stability

The company has enjoyed positive net income for the five years prior and passes this test for the enterprising investor.

3) Dividend record

Currently, the company pays a dividend and passes the test of dividend payment.

4) Earnings growth

Earnings are greater than five years ago which allows Costco to pass this test.

Conclusion:

Costco passes the test for an enterprising investor with a score of 4/5.

Valuation:
Our analysis computes a fair price of $43.40 which concludes on a pure valuation approach of an overpriced security as the current market price is roughly $53.
 

Opinion:
Given the fact that the company passes the test for the enterprising investor we would allow this security to be in out portfolio, but given the inflated share price at this time we would wait for a more attractive price. An approximate ten percent decrease in share price would be place Costco in a more suitable position for acquisition.

Neither of us held a position in Costco at the time of publication.  Also, please read our disclaimer and Our Methods.

Please register and discuss this article in our forums.  Your comments help us mold our future articles.

 

 

JPMorgan Chase & Co Valuation – April 2019 #JPM

Company Profile (excerpt from Reuters): JPMorgan Chase & Co. (JPMorgan Chase), incorporated on October 28, 1968, is a financial holding company. The Company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. JPMorgan Chase’s activities are organized into four business segments, as well as a Corporate segment. The Company’s segments include Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset & Wealth Management. Its principal bank subsidiaries include JPMorgan Chase Bank, National Association (JPMorgan Chase Bank, N.A.), a national banking association, and Chase Bank USA, National Association (Chase Bank USA, N.A.), a national banking association that is the Company’s credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (JPMorgan Securities), the United States investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally, as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. The Company’s principal operating subsidiary in the United Kingdom is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JPM – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $345,203,229,629 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 75.51% Pass
5. Moderate PEmg Ratio PEmg < 20 13.57 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.38 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.76
MG Growth Estimate 7.10%
MG Value $176.18
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $112.58
MG Value based on 0% Growth $65.99
Market Implied Growth Rate 2.54%
Current Price $105.37
% of Intrinsic Value 59.81%

JPMorgan Chase & Co. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.27 in 2015 to an estimated $7.76 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.54% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into JPMorgan Chase & Co. revealed the company was trading below its Graham Number of $116.88. The company pays a dividend of $2.72 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.57, which was below the industry average of 15.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

JPMorgan Chase & Co. fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Graham Number $116.88
PEmg 13.57
PB Ratio 1.38
Dividend Yield 2.58%
TTM Dividend $2.72
Number of Consecutive Years of Dividend Growth 8

 

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $282,031,000,000
Total Assets $2,622,532,000,000
Intangible Assets $54,349,000,000
Total Liabilities $2,366,017,000,000
Shares Outstanding (Diluted Average) 3,347,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.63
Dec2018 $9.00
Dec2017 $6.31
Dec2016 $6.19
Dec2015 $6.00
Dec2014 $5.29
Dec2013 $4.34
Dec2012 $5.20
Dec2011 $4.48
Dec2010 $3.96
Dec2009 $2.26
Dec2008 $1.35
Dec2007 $4.38
Dec2006 $4.04
Dec2005 $2.38
Dec2004 $1.55
Dec2003 $3.24
Dec2002 $0.80
Dec2001 $0.80
Dec2000 $2.86
Dec1999 $3.69

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.76
Dec2018 $7.07
Dec2017 $5.95
Dec2016 $5.65
Dec2015 $5.27
Dec2014 $4.82
Dec2013 $4.41
Dec2012 $4.11
Dec2011 $3.47
Dec2010 $3.05
Dec2009 $2.69
Dec2008 $2.85
Dec2007 $3.44
Dec2006 $2.78
Dec2005 $2.01
Dec2004 $1.84
Dec2003 $2.08

Recommended Reading:

Other ModernGraham posts about the company

JPMorgan Chase & Co Valuation – November 2018 $JPM
JPMorgan Chase & Co Valuation – February 2018 $JPM
10 Best Dividend Paying Stocks for the Defensive Investor – August 2016
5 Most Undervalued Stocks in the Dow – August 2016
10 Low PE Stock Picks for the Defensive Investor – August 2016

Other ModernGraham posts about related companies

Wells Fargo & Co Valuation – April 2019 #WFC
SunTrust Banks Inc Valuation – March 2019 #STI
Comerica Inc Valuation – March 2019 #CMA
SVB Financial Group Valuation – March 2019 #SIVB
US Bancorp Valuation – March 2019 #USB
Citizens Financial Group Inc Valuation – February 2019 $CFG
BB&T Corp Valuation – February 2019 $BBT
M&T Bank Corp Valuation – February 2019 $MTB
Bank of America Corp Valuation – January 2019 $BAC
Fifth Third Bancorp Valuation – January 2019 $FITB

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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