Costco Has A Long Way To Drop Before It’s Fairly Valued

Costco shopping experience

Costco sells merchandise at heavy discounts through its warehouse clubs competing with large retailers like Wal-Mart, Target, BJ’s Wholesale Club and Sam’s Club.

We estimate that roughly 43% of the $49.76 Trefis price estimate for Costco’s stock can be attributed to its U.S. core merchandise division, through which the company offers bulk goods at discounted prices to members that pay an annual fee for access. Costco’s growth prospects are largely driven by potential expansion of its highly-successful business model into new U.S. markets.

The number of Costco U.S. Warehouse Clubs grew rapidly between 2006 and 2008, from 369 to 403. Over the past few years, however, a difficult economic climate has slowed expansion, with total US Warehouse Clubs now totaling roughly 416.

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We believe that there is ample room for continued U.S. expansion given Costco’s lower penetration in areas like the North East, and we anticipate an increased growth pace to follow an improving domestic economic outlook. We anticipate a re-acceleration in openings in the years ahead and forecast total stores hitting 454 by 2013.

However, aggressive domestic expansion could lead to over-saturation of target consumer markets. Should self-cannibalization hinder profit margins, the company could look to decelerate its U.S. growth pace and place greater emphasis on international expansion. We currently estimate that Costco’s International Core Merchandise Division accounts for roughly 19% of the company’s value.

You can modify the chart above based on your own perspective for Costco’s US expansion and assess the impact on the company’s stock value given flat revenue per square foot and profit margins. Or visit our site to perform more extensive analysis of Costco’s stock value.

See our full analysis for Costco here.

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S&P 500 Is Fully Valued

Nov. 15 2010 - 5:08 pm | 65 views | 0 recommendations |

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The risk/reward of the entire S&P 500 gets my “neu-tral” rat-ing.? My recently pub-lished Index Bench-mark report on the S&P 500 offers unique insights into the under-ly-ing prof-itabil-ity and val-u-a-tion of all the com-pa-nies com-prised by this index. It also offers bench-marks for investors con-sid-er-ing buy-ing ETFs or index funds based on the S&P 500 and for com-par-ing indi-vid-ual stocks to the index.

Our analy-sis of the index is based on the market-weighted aggre-ga-tion of data from our com-pany mod-els for the 481 com-pa-nies we cover in the S&P 500. Below is an overview of the five fac-tors that drive our Over-all Risk/Reward Rat-ing of Dan-ger-ous for this?index.

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1. Qual-ity of Earnings
   • Eco-nomic ver-sus reported earn-ings – Attractive/Positive Eco-nomic Earnings
   • Quin-tile Rank-ing for return on invested cap-i-tal (ROIC) – Very Attractive/1^st (best) Quintile
2. Val-u-a-tion
   • Free Cash Flow Yield – Attrac-tive at?3.3%
   • Price-to-economic book value – Attrac-tive at?1.3
   • Growth Appre-ci-a-tion Period – Dan-ger-ous at 20?years

Notably, Apple (AAPL) and Microsoft’s (MSFT) large mar-ket caps and extra-or-di-nar-ily high ROICs have a major impact on the market-weighted ROIC of the S&P 500. AAPL has an ROIC of 190.2% and is 2.6% of the S&P 500’s mar-ket value, rep-re-sent-ing 5% of the S&P 500’s ROIC. The next largest impact is from MSFT with an ROIC of 61.6% and as 2.1% of the S&P 500, it makes up 1.3% of the S&P 500’s ROIC. With-out AAPL and MSFT, the S&P 500’s market-weighted ROIC would fall from 17.4% to 11.1%. Click here for our report on MSFT and here for our report on AAPL.

Def-i-n-i-tions of the five fac-tors that drive our Risk Reward Rat-ings are?below:

1. Qual-ity of Earnings
2. Val-u-a-tion
   • Free Cash Flow Yield –? mea-sures the market-weighted aver-age of the free cash flow divided by enter-prise value for the com-pa-nies we cover in each?index
   • Price-to-economic book value –? mea-sures the market-weighted aver-age of stock price divided by the eco-nomic book value of the com-pa-nies we cover in each?index
   • Growth Appre-ci-a-tion Period – mea-sures the market-weighted aver-age of the market-implied growth appre-ci-a-tion period for the com-pa-nies we cover in each?index

Note that the indi-vid-ual com-pany mod-els used to per-form this analy-sis incor-po-rate key data from finan-cial foot-notes and the management’s discussion and analysis to reverse account-ing dis-tor-tion and pro-vide investors with the true eco-nomic earn-ings of businesses.

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Akamai Looks Like lunch AT & T, stock, valued at $28

Steps to competitiveness

Dan Rayburn reported in his blog, AT & T joins with Cotendo to push on value added services such as the acceleration of the application and the acceleration of the dynamics of the site.Company has already signed up to approximately 200 customers who use their services acceleration Cotendo is a network of distribution of content that was launched in 2009 and has developed acceleration .According technology blog.

The AT & T-Cotendo partnership may be serious competition in the long term for Akamai. below we discuss the potential impacts of the new partnership AT & T and Akamai.

AT & T provides value added more

Value-added services beyond traditional content delivery are a growing part of business Akamai.Le partnership Contendo-AT & T provides AT & T capacity to sell more value added services such as the acceleration of the application and acceleration of dynamic site customers existing business by taking advantage of Contendo technology.

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AT & T indicated that approximately 40-60% of all new customers in its sales pipeline have existing DNS capability or will a ^[].This implies that the company has significant sales opportunities already in the pipeline when it comes to value added services.

In addition, value added services may permit AT & T do share in the broader market can AT & T more to appeal to customers looking for such services.AT & T stated that it the price of its products at a discount of 50% for what is Akamai and maintain comfortable margins ^[] were more WINS for AT & T can contribute to society slow its declining revenues of the company.

Pressure on Akamai

Competitive prices in the value-added services will put pressure on Akamai lowering its prices or to limit increases in prix.En line shopping (e-commerce) segment accounts of Akamai during most of the use of the value added services.Concurrence higher value added services may affect the number of online stores customers Akamai as well as revenues from the Akamai customers shopping online.

Despite growing competition, we kept Trefis price estimation for stock of Akamai unchanged as we have already taken into account in the higher price competition in the future .Cependant, you change forecasts above to see engines main Akamai stock sensitivity as its customers purchase online and the amount of revenue that akamai generates on average each customer shopping online.

You can see Trefis $28 full price estimate stock the Akamai here.

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