How Costco’s Valuation Multiples Compare



Valuation summary

As of December 14, 2017, Costco Wholesale (COST) stock was trading at a forward PE (price-to-earnings) multiple of 28.5x, which is well above its peer group’s average of 17.8x and the S&P 500’s (SPX) 18.8x. Costco was also trading at a higher valuation multiple than the Consumer Staples Select Sector SPDR ETF (XLP).

In comparison, Walmart (WMT) and Target (TGT) stock were trading at forward PE multiples of 21.0x and 14.6x, respectively. Forward PE multiples vary based on several factors, including growth expectations and capital structure.

Growth projections

Costco has a better growth rate than peers, which supports its high valuation multiple. Analysts expect the company’s EPS to grow by double digits in fiscal 2018, driven by strong sales, and the EPS are likely to grow at a healthy rate over the long term period. However, its earnings are expected to be pressured by low pricing, increased competition, and investments in growth initiatives.

Walmart’s earnings are also projected to improve over the next few years. However, its growth rate is likely to remain below Costco’s. As for Target (TGT), analysts expect the company’s EPS to fall in the near term, reflecting higher fulfillment costs and price investments. Whereas the company’s EPS are expected to improve in the long run, its growth rate is forecast to remain low.

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