Citigroup Downgrades Costco
- By Alberto Abaterusso
Analysts have a positive outlook for Costco Wholesale Corp. (COST), forecasting that the U.S. global retailer will increase net earnings by 9% to $8.44 per share in full fiscal 2020 from $7.74 per share expected in full fiscal 2019 and by nearly 12% every year for the next five years.
Warning! GuruFocus has detected 7 Warning Sign with COST. Click here to check it out.
The intrinsic value of COST
But analysts of Citigroup Inc. (C) have a different opinion about Costco Wholesale Corp. Their report dispatched Monday lowered their recommendation rating to neutral from buy.
The reason for the downgrade is that the Citi analyst team sees higher labor costs and other headwinds for the retailer in 2019. The firm has also lowered the price target to $238 per share from the previous $257, reflecting 2.5% downside from the share price of $232.08 at close Monday.
Citi's new target price will drag the average target price down to around $244.34, which represents a5.3% upside from the share price at close Monday. The average target price is a mean of 24 estimates, which range between a low of $206 and a high of $265.
Costco has a recommendation rating of 2.1 out of 5, indicating that the retailer is seen as a buy. As of December, there are 29 estimates on Costco, of which 7 are for a strong buy, 11 are for a buy and 11 are for a hold.
The market value of Costco has climbed 24% for the 52 weeks through Dec. 3. It has a market capitalization of $101.7 billion. The GuruFocus chart below shows the current share price is well above the 200-day simple moving average line and slightly above the 100- and 50-SMA lines.
The 52-week range is $175.79 to $245.16.
Costco has paid dividends for more than 15 years. The company is paying a quarterly cash dividend of 57 cents for a forward dividend yield of 0.98% versus an industry median of 2.22% as of Dec. 3. The S&P 500 index has a dividend yield of 1.88% as of Monday.
The issuance of dividends is based on a solid balance sheet. GuruFocus rates the financial strength of Costco with a rating of 7 out of 10. Regarding profitability and growth, GuruFocus has assigned a higher rating of 8 out of 10. Costco has beaten most of its competitors in terms of higher profitability and growth.
Costco has a forward price-earnings ratio of 29.94 compared to an industry median of 17.83. When the forward price-earnings ratio is multiplied by earnings per share of $8.09, which is an average of estimates for full fiscals 2019 and 2020, it yields a value of $242.21 per share versus the share price of $232.08 at close Monday.
The stock has a price-book ratio of 7.95 versus an industry median of 1.73 and a price-sales ratio of 0.72 versus an industry median of 0.48. The price-earnings ratio is 32.73 compared to an industry median of 18.85. According to the Peter Lynch chart, Costco is overpriced since it is trading higher than its fair value.
Disclosure: I have no positions in any securities mentioned in this article.
Read more here:
Costco Announces 10.3% Growth in Net Sales
Costco Drops After 4rd Quarter Results
National Retail Federation Forecasts Growth During Holiday Season
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 7 Warning Sign with COST. Click here to check it out.
The intrinsic value of COST
