Is Costco a buy?

It’s time to talk about a major big box name! Here is the breakdown on $COST, otherwise known as Costco.

Current Price: $354.33

52/Wk High: $388.07

52/Wk Low: $264.36

Market Cap: $156.8 Billion

Dividend: $2.80 / 0.79% Yield

Read below for the breakdown!

Costco Wholesale is a major diversified retail name with strong customer loyalty, strong growth, and over 800 locations throughout the world.

Breaking down Costco’s stock price according to TREFIS (@trefis) data, the Core Merchandise US segment represents about 48.99%.

Furthermore, Core Merchandise International represents 19.01%, Ancillary Business 14.85%, Membership Fees 14.65%, and Cash represents 2.49%.

Throughout the past few months, Costco has been surprisingly weak, turning out a three month loss of -6.4%, even though the pandemic led to a huge spree of bulk shopping.

One of the most impressive parts of Costco is their membership renewal rate, which at the end of 2020 was a stellar 91% in the US and 88% in Canada. Making that statistic even more impressive is the fact that Costco has over 107.1 million members, so it's fair to say Costco knows what they're doing.

Digging into the numbers Costco delivered a Q1 beat, with an EPS of $2.30, better than the expected EPS estimate of $2.05. On a year over year basis, the Q1 EPS represents a 32.95% improvement over Q1 of 2020.

Costco delivered strong sales as well, with net sales totaling $42.35 billion, representing a strong 16.9% increase on a year over year basis. Management also reported a strong net income level of $1.166 billion, much better than the Q1 2020 level of $844 million.

As for operating income, Costco delivered a solid $1.430 billion, much better than the Q1 2020 operating income level of $1.061 billion. On a year over year basis, operating income improved roughly 34%.

Sorting Costco’s locations, the amount of locations by segment is below.

United States: 558

Canada: 102

Mexico: 39

United Kingdom: 29

Japan: 27

Korea: 16

Taiwan: 14

Australia: 12

China: 1

And locations in other various locations.

Shifting into the balance sheet the numbers are solid.

Total Debt: $7.625 Billion

Total Liabilities: $45.357 Billion

Total Assets: $60.217 Billion

Cash & Short Term Inv: $14.423 Billion

When it comes to valuation Costco is trading at a premium, but is by no means too expensive.

Price to Earnings: 37.20x

Price to Sales: 0.93x

Price to Book: 10.80x

Price to Cash Flow: 23.29x

Management has done a solid job as well, continually performing above par.

Return on Equity: 28.15%

Return on Assets: 7.85%

Return on Invested Capital: 16.89%

Given the numbers the analysts are bullish on Costco, with a mean price target of $402.63/share, representing a 13.59% upside.

It is also important to note that the high price target is $435.00/share, representing a 22.72% upside, while the low price target is $343.00/share, representing a -3.24% downside.

The big money is quite involved as well, with 66.99% of Costco being owned by institutions. Top holders include The Vanguard Group, BlackRock Institutional Trust, and State Street Global Advisors.

On a technical basis, Costco could be presenting an opportunity. According to the six-month charts the MACD is moving strongly to the downside within a range of -1.9951 to -3.3277.

The six-month charts are also indicating an RSI of 33.29 and CCI of -150.4254, both of which are on the low end.

In short, Costco is a strong name with staggering customer loyalty, a growing online segment, and a management team that continues to execute near perfect.

EAT - SLEEP - PROFIT

Disclaimer: This is not direct financial advice, simply an opinion based on independent research.