Costco Wholesale Corporation (COST)

Discount cash flow analysis

Sell Overvalued by 72.8%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Costco Wholesale Corporation, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2008 2009 2010 2011 2012 2013 2014 2015
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $42.11 $41.41 $40.73
Terminal Growth% 0 $42.39 $41.68 $41.00
  +1% $42.67 $41.95 $41.26

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $82.64 (overvalued by 46.04%) - 1 year ago
  • swampler created a new valuation of $55.72 (overvalued by 23.16%) - over 6 years ago
  • swampler created a new valuation of $55.72 (overvalued by 23.16%) - over 6 years ago
  • tonytone68 created a new valuation of $43.21 (overvalued by 8.2%) - over 8 years ago
  • KiwiEMH created a new valuation of $41.68 (overvalued by 2.21%) - over 8 years ago

Comments

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The boring details

All amounts in millions Figures
Enterprise Value: 65,422
Net Debt (Long-term borrowings less cash): -928
Equity Value: 18,464
Number of Shares Outstanding: 433,000,000
Calculated value per share: $41.68

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.