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Costco at a Fair Price and Macy's at a Bargain Price

These are our articles posted on Seeking Alpha. Click "READ MORE" if you would like to read the rest of the articles.

Costco: A Great Company At A Fair Price

Summary

  • In this article, I discuss Costco from a valuation perspective.
  • I forecast Costco’s revenue for 2016-2020 by projecting membership fees and net sales from warehouses.
  • Under reasonable assumptions, my DCF model yields a fair value close to $158 for Costco.

Valuing a business like Costco (NASDAQ:COST) is difficult due to a number of reasons. Above all, it is difficult to quantify the customer loyalty and goodwill Costco has built over the years. One might argue that a company's brand value ought to translate into higher cash flows and better margins, but the problem is that the financials do not always 'fully' reflect all the great aspects of a business. Still, discussing a company from a valuation perspective can be insightful.

Last time, I discussed a number of catalysts that could drive COST higher. Here I discuss how those factors could affect Costco's valuation.

To determine the fair value of Costco's stock, I use a 5-year DCF model, modelling for a 3% terminal FCF growth rate. My model uses WACC, calculated using the CAPM, as the discount rate. The model is based on important assumptions concerning Costco's revenue growth and (adjusted) EBITDA margin which I will explain in detail... READ MORE



Macy's Is A Steal Right Now

Summary

  • Macy’s is striving to operate more efficiently.
  • Macy’s has been adding backstage stores which are likely to improve margins.
  • Macy’s omnichannel business has a lot of potential to drive revenues and margins in the future.
  • Macy’s could realistically create $10 billion of shareholder value if it pursues a JV transaction.
  • Macy’s dividend is sustainable.

Macy's stock has dropped a lot but it has some catalysts that could push it higher.

Mr. Market hasn't been kind to Macy's (NYSE:M) lately. In the last 12 months, shares have fallen by no less than 40%. Currently, Macy's stock price is sitting nearly 3%, 4% and 17% below its 20-day EMA, 50-day EMA, and 200-day EMA, respectively... READ MORE

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