Costco Wholesale CorporationCOSTNASDAQ

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $1,091.63 per share(market-calibrated)

+8.9%

Upside to Fair Value

Current

$1,002.77

Pure Model

$1,079.46

Fair Value

$1,091.63

Bull Case

$1,350.85

Bear Case

$835.93

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

4.15%

Calibrated Growth

2.75%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $1,079.46.

What's Driving This Ratingfor COST

✓

CapEx already efficient

CapEx at 1.60% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 4.66% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $56.1B (12.28% margin).

→

Moderate revenue growth

Analyst consensus projects 8.08% revenue growth, fading to 2.50% by Year 10. Revenue reaches $456.5B (vs $275.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $792.51/share (16.0x terminal FCF) while exit multiple gives $1,366.40/share (32.2x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.50% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $1,002.77, the market implies 4.15% perpetual growth — 165bps above the model's 2.50%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 62.19% indicates efficient cash generation. FCF reaches $37.0B by Year 10 (8.11% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.01

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.04%

Cost of Debt

Pre-tax Cost of Debt1.99%

Tax Rate25.13%

After-tax Cost of Debt1.49%

Equity Weight (E/V)98.20%

Debt Weight (D/V)1.80%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (98.20% × 9.04%) + (1.80% × 1.49%)

= 8.90%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$297.5B	$343.3B	$384.1B	$417.7B	$456.5B
EBIT	$13.9B	$16.0B	$17.9B	$36.5B	$56.1B
Tax	$3.5B	$4.0B	$4.5B	$9.2B	$14.1B
NOPAT	$10.4B	$12.0B	$13.4B	$27.3B	$42.0B
+ Depreciation	$2.3B	$2.6B	$2.9B	$3.2B	$3.5B
- Capex	$4.8B	$5.5B	$6.1B	$6.7B	$7.3B
- Δ NWC	$2.2B	$2.4B	$1.8B	$1.6B	$1.1B
Free Cash Flow	$5.6B	$6.7B	$8.3B	$22.2B	$37.0B
Discount Factor	0.918	0.774	0.653	0.551	0.426
Present Value	$5.2B	$5.2B	$5.4B	$12.2B	$15.8B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$37.0B

Terminal Growth Rate2.50%

WACC8.90%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$593.0B

PV of Terminal Value$252.8B

Exit Multiple Method

Year 10 EBITDA$59.5B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$1.2T

PV of Terminal Value$507.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$93.1B

PV of Terminal Value$252.8B

Enterprise Value$345.9B

(-) Net Debt-$6.0B

Equity Value$351.9B

Shares Outstanding444M

Price per Share$792.51

Exit Multiple Method

PV of Projected FCFs$93.1B

PV of Terminal Value$507.6B

Enterprise Value$600.7B

(-) Net Debt-$6.0B

Equity Value$606.7B

Shares Outstanding444M

Price per Share$1,366.40

Pure Model Fair Value

$1,079.46

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
6.90%	$1,341.62	$1,384.84	$1,437.88	$1,504.53	$1,590.77
7.90%	$1,172.72	$1,200.57	$1,233.58	$1,273.33	$1,322.10
8.90%	$1,038.58	$1,057.54	$1,079.46	$1,105.09	$1,135.47
9.90%	$928.36	$941.80	$957.04	$974.50	$994.69
10.90%	$835.63	$845.45	$856.44	$868.82	$882.87

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$835.93

-16.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.26

Base Case

$1,079.46

7.6% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.01

Bull Case

$1,350.85

34.7% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.86

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth8.08%

Year 3 Revenue Growth7.36%

Year 5 Revenue Growth5.05%

Year 7 Revenue Growth4.03%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin4.66%

Terminal EBIT Margin16.00%

Tax Rate25.13%

Historical Capex / Rev1.60%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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