Costco Wholesale Corporation (NASDAQ: COST) has seen its forward P/E multiple decline from 28.3x from mid-November 2018 to 27.3x as of January 17, 2019, with the company’s gross margins narrowing to ~10.7% in FY19’Q1, its lowest since FY14.
While the application of current forward P/E ratio to the FY19E diluted EPS forecast of USD7.42 results in a price target of ~USD202.0 with a downside of ~4.4%, the adjusted trailing-twelve months (TTM) P/E ratio of ~31.3x yields a stock worth USD231.9 with an upside of 9.7%.
Meanwhile, a DCF valuation, assuming ~5.0% WACC and trailing EV/EBITDA ratio of 13.0x for terminal value calculation, results in a fair value of ~USD245.8, where the upside amounts to ~16.2%.
Against this backdrop where there are twice as many earnings downgrades as upgrades over the past four weeks by Wall Street Analysts for FY19E earnings, , this article explores why it’s too early for COST’s investors to dump the stock which has declined by ~6.6%, (cf. 0.6% decline of S&P 500) since its latest earnings release in December.
Click here to read the full article on Seeking Alpha.