The Company we choose to analyze is Costco (COST) and while our analysis has found the company to appear to be overvalued at the current stock price of $142.99 we are suggesting that investors should BUY as we believe there are many indications that the stock price will continue to climb due to the company’s strong and consistent performance in the sector as well as their risk and return metrics. We believe that Costco’s strengths lie in its revenue growth, growth in earnings per share, and increases in net income. The company has also demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. Most recently they released an announcement of a $2.2B special cash dividend to stock holders made available by their very strong cash position which we believe will continue to attract new investors to this stock.
The secret to Costco’s success lies in their engagement with their members. It is apparently in vogue to be a Costco member as is seen in their continued growth in membership enrollment. Their customers are loyal to them and recognize the value in paying to have the privilege of being a Costco member. Their renewal rate is the highest of their competitors at 90%. Memberships enrollments were virtually unaffected by the recent increase in membership prices which are the higher than any of their competitors. Retail prices are razor sharp and the shopping experience is made positive by the in store sampling, no hassle return policy (without a receipt), and the great values on name brand and store brand high quality products at tremendous savings vs. traditional retail stores. Given that about 75 percent of Costco's operating profit comes from membership fees alone, "literally every decision Costco makes comes down to what the member wants,” says analyst, Altukhaim. Costco's Kirkland brand, which accounts for about 20 percent of the company's sales, is one of the reasons Costco’s members are so loyal. By using the Kirkland brand to sell quality products at an affordable price, Costco has convinced consumers to trust Kirkland, and Costco by extension.
Costco’s employees are often longtime associates that have risen through the ranks and are equally as happy with the Costco club experience. Better paid, with significant chances for advancement given the growth the company is experiencing these workers are engaging with members in a much more positive way than can be found in Costco’s competitors. They promote their employees from within the organization and have a reputation as being an outstanding employer.
Costco has managed to deliver value consistently to shareholders, customers and employees. While the stock clearly seems premium priced based on the DDM as well as other factors we think it has additional room to increase. We will review the financial and economic metrics we used to make this recommendation below.
Background Information on the Company
Founded in 1983 by James D. Sinegal and Jeffrey H. Brotman and headquartered in Issaquah, WA, Costco Wholesale Corporation operates membership warehouses, offering members low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories. The company warehouses present exclusive product category selections to be found under a single roof, including dry and institutionally packaged foods, snacks, candy, tobacco, alcoholic and non-alcoholic beverages, cleaning supplies, appliances, electronics, auto products and tires, health and beauty aids, hardware, garden, patio, funeral, and office supplies. Other products are meat, deli, bakery and produce, apparel, small appliances, and home furnishings.
The company also provides ancillary services by operating pharmacies, gas stations, optical dispensing centers, photo processing centers, and travel business. By the last quarter of 2014,
Costco Wholesale Corp.: Mission, Business Model, and Strategy 1. What is Costco’s business model? Is the company’s business model appealing? Costco’s business model depends on high sales volume along with quick inventory turnover, which is made possible by low prices and limited product selection. This business model is appealing for them and has many benefits. Firstly, by setting up the business approach to rapidly turning over inventory, the company is often able to sell their products…
Past few weeks of studies has enlightened us with many concepts and ideas that businesses practice in order to maximize profits, increase return on investment and differentiate them to survive and sustain the trends of the consumer market. One of the key factors discussed is economies of scale which has a huge impact in the current business environment as it also plays a vital role to create barrier for other small businesses to enter as a possible contender or competitor in the same industry. Through…
|Costco | |ESC-Accounting and Finance | | | |This case analysis will analyze the efficiency and health of the organization. This | |case analysis was created using the textbook and the Stanford Graduate School of | |Business. Costco Wholesale Corporation Financial Statement…
broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors. • Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its…
Costco: A Wholesale Bull Team D ACC/290 1/16/2014 Costco: A Wholesale Bull Winding through the aisles of Costco, midday on a Saturday lunch hour, snatching up free samples of packaged meals, meats, and other items on display, is a common trend for most bulk shoppers. Those who have ever frequented the mass gathering of this growing bulk product sales giant understand that Costco is different than other bulk product companies. It has a growth unchallenged by others in the wholesale bulk product…
Costco Wholesales is a provider to customers of quality goods and services at the absolute lowest prices possible. Because this company spreads so widely across the world, things might or might not tend to get a little disorganized. For most companies, a mission statement and or goal, is set in place to avoid this disorganization. For Costco, the founders have developed a Code of Ethics for all employees and employers to follow. Their Code of Ethics consists of obeying the law, taking care of members…
Research Project Walmart/Costco Amanda Nicholson Professor Stephen Rosales FIN301A 6/21/2015 Walmart is an American multinational retail corporation that runs chains of large discount department stores headquartered in Bentonville, Arkansas. The company was founded in 1962 by Sam Walton and the first Walmart was opened that year in Rogers, Arkansas. Walmart is now the world’s largest public corporation, the biggest private employer, and the largest retailer in the world. According to the…
CASE: A-186A DATE: 06/19/03 CosTco WHOLESALE CORPORATION FINANCIAL STATEMENT ANALYSIS (A) INTRODUCTION Margarita Torres first purchased shares in Costco Wholesale Corporation in 1997 as part of her personal investment portfolio. Between 1997 and 2002, she added slightly to her holdings from time to time when the company sold stock for what she felt was a reasonable valuation, and up to that time she did not sell any of her shares. Having watched Costco grow from 265 warehouses to 365 worldwide…
Case Study #1 Costco Central Michigan University 1. Describe Costco Business Model. According to CMU (2010), the Costco business model was “to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories” (p.388). * Rapid inventory turnover – When combined with efficiencies gained through bulk purchasing, sound logistics, and minimal product…
employees affordable health-care coverage. In contrast, rival Costco Wholesale Corp. often is held up as a retailer that does it right, paying well and offering generous benefits. But Costco's kind-hearted philosophy toward its 100,000 cashiers, shelf-stockers and other workers is drawing criticism from Wall Street. Some analysts and investors contend that the Issaquah, Wash., warehouse-club operator actually is too good to employees, with Costco shareholders suffering as a result. "From the perspective…