DCF Model

Unlevered Free Cash Flow (mm)

Fiscal Year 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E
Unlevered Free Cash Flow 3,158 2,859 4,698 3,890 5,256 5,673 5,799 5,705

Projection Year 1 2 3 4 5
Present Value of Free Cash Flow 3,661 4,657 4,732 4,552 4,216

Implied Share Price Calculation Sensitivity Table

Sum of PV of FCF 21,819
Growth Rate 3% Growth Rate
WACC 6.2% 358.48 2.00% 2.50% 3.00% 3.50% 4.00%
Terminal Value 1,81,615 5.24% 371.47 430.62 516.22 651.16 895.34
PV of Terminal Value 1,34,217 5.74% 322.40 364.90 422.94 506.93 639.34

WACC
Enterprise Value 1,56,036 6.24% 284.92 316.78 358.48 415.43 497.86
(+) Cash 11,258 6.74% 255.36 280.02 311.28 352.21 408.10
(-) Debt 7,491 7.24% 231.44 251.02 275.22 305.91 346.08
(-) Minority Interest 514
Equity Value 1,59,289
Diluted Shares Outstanding (mm) 444.35
Implied Share Price 358.48

Prepared : Shaik Omer

 DCF Model
Unlevered Free Cash Flow (mm)
Fiscal Year 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E
Revenue 1,52,703 1,66,761 1,95,929 2,15,522 2,37,074 2,58,411 2,76,500 2,90,324
COGS 1,32,886 1,44,939 1,70,684 1,87,541 2,06,296 2,24,862 2,40,602 2,52,633
Gross Profit 19,817 21,822 25,245 27,981 30,779 33,549 35,897 37,692
Operating Expenses
Selling, General, Administrative 13,588 14,742 16,756 18,887 20,776 22,646 24,231 25,443
Total Operating Expenses 13,588 14,742 16,756 18,887 20,776 22,646 24,231 25,443
EBITDA 6,229 7,080 8,489 9,093 10,003 10,903 11,666 12,249
Depreciation & Amortization 1,492 1,645 1,781 1,996 2,144 2,304 2,475 2,659
Operating Profit (EBIT) 4,737 5,435 6,708 7,097 7,858 8,599 9,191 9,590
Operating Taxes 1,061 1,308 1,601 1,490 1,650 1,806 1,930 2,014
NOPAT (Net Operating Profit After Taxes) 3,676 4,127 5,107 5,607 6,208 6,793 7,261 7,576
(+) Depreciation & Amortization 1,492 1,645 1,781 1,996 2,144 2,304 2,475 2,659
(-) Capital Expenditures 2,701 5,350 3,568 3,957 4,252 4,568 4,907 5,272
(-) Change in NWC (691) (2,437) (1,378) (244) (1,156) (1,144) (970) (741)
NWC (7,497) (9,934) (11,312) (11,556) (12,712) (13,856) (14,826) (15,567)
Current Assets 14,041 14,815 17,330 19,467 21,414 23,341 24,975 26,224
Current Liabilitites 21,538 24,749 28,642 31,023 34,126 37,197 39,801 41,791
Unlevered Free Cash Flow 3,158 2,859 4,698 3,890 5,256 5,673 5,799 5,705

Assumptions
Fiscal Year 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E
Revenue Growth 9.2% 17.5% 10.0% 10.0% 9.0% 7.0% 5.0%

COGS % of Revenue 87.0% 86.9% 87.1% 87.0% 87.0% 87.0% 87.0% 87.0%
SG&A % of Revenue 8.9% 8.8% 8.6% 8.8% 8.8% 8.8% 8.8% 8.8%
Tax % of EBIT 22.4% 24.1% 23.9% 21.0% 21.0% 21.0% 21.0% 21.0%

Prepared : Shaik Omer

DCF Model
Net Working Capital
Fiscal Year 2018A 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E
Accounts Receivables 1,669 1,535 1,550 1,803 2,173 2,391 2,606 2,788 2,928
Merchandise Inventory 11,040 11,395 12,242 14,215 16,088 17,697 19,290 20,640 21,672
Other Current Assets 321 1,111 1,023 1,312 1,206 1,326 1,445 1,547 1,624
Current Assets 13,030 14,041 14,815 17,330 19,467 21,414 23,341 24,975 26,224

Accounts Payable 11,237 11,679 14,172 16,278 17,455 19,200 20,928 22,393 23,513
Accrued Salaries and Benefits 2,994 3,176 3,605 4,090 4,550 5,005 5,455 5,837 6,129
Accrued Member Rewards 1,057 1,180 1,393 1,671 1,728 1,901 2,072 2,217 2,328
Deferred Membership Fees 1,624 1,711 1,851 2,042 2,381 2,620 2,855 3,055 3,208
Other Current Liabilities 2,924 3,792 3,728 4,561 4,910 5,401 5,887 6,299 6,614
Current Liabilities 19,836 21,538 24,749 28,642 31,023 34,126 37,197 39,801 41,791

Assumptions
Fiscal Year 2018A 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E
Revenue 1,41,576 1,52,703 1,66,761 1,95,929 2,15,522 2,37,074 2,58,411 2,76,500 2,90,324
COGS 1,23,152 1,32,886 1,44,939 1,70,684 1,87,541 2,06,296 2,24,862 2,40,602 2,52,633

Days Sales Outstanding (DSO) 4.2 3.6 3.3 3.3 3.6 3.6 3.6 3.6 3.6
Days Inventory Outstanding (DIO) 32.3 30.9 30.4 30.0 30.9 30.9 30.9 30.9 30.9
Days Payable Outstanding (DPO) 32.8 31.6 35.2 34.3 33.5 33.5 33.5 33.5 33.5

Other Current Assets as a % of Revenue 0.2% 0.7% 0.6% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6%
Accrued Salaries as a % of Revenue 2.1% 2.1% 2.2% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1%
Accrued Member Rewards as a % of Revenue 0.7% 0.8% 0.8% 0.9% 0.8% 0.8% 0.8% 0.8% 0.8%
Deferred Membership Fees as a % of Revenue 1.1% 1.1% 1.1% 1.0% 1.1% 1.1% 1.1% 1.1% 1.1%
Other Current Liabilities as a % of Revenue 2.1% 2.5% 2.2% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3%

Prepared : Shaik Omer

 DCF Model

Fixed Assets Schedule Weighted Average Cost of Capital (WACC)

Fiscal Year 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E Equity (mm) 2,14,560
Beginning PP&E 19,681 20,890 24,595 26,382 28,343 30,450 32,714 35,146 Debt (mm) 7,491
D&A 1,492 1,645 1,781 1,996 2,144 2,304 2,475 2,659
CapEx 2,701 5,350 3,568 3,957 4,252 4,568 4,907 5,272 Cost of Debt 2.3%
Ending PP&E 20,890 24,595 26,382 28,343 30,450 32,714 35,146 37,759 Tax Rate 21.0%
D/(D+E) 3.4%
Assumptions After Tax Cost of Debt 1.8%
Fiscal Year 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E
D&A as a % of Beginning PP&E 7.6% 7.9% 7.2% 7.6% 7.6% 7.6% 7.6% 7.6% Risk Free Rate (10-Yr Treasury Yield) 3.1%
CapEx as a % of Beginning PP&E 13.7% 25.6% 14.5% 15.0% 15.0% 15.0% 15.0% 15.0% Expected Market Return 7.8%
Market Risk Premium 4.7%
Levered Beta 0.7
E/(D+E) 96.6%
Cost of Equity 6.4%

WACC 6.2%

Prepared : Shaik Omer

DCF Model

Historical Financials
Historical Income Statement: Shares in Thousands, $ in Millions 2019A 2020A 2021A
Revenue
Total revenue 1,52,703 1,66,761 1,95,929
Operating Expenses
Merchandise costs 1,32,886 1,44,939 1,70,684
Selling, general and administrative 13,502 14,687 16,680
Depreciation & Amortization 1,492 1,645 1,781
Preopening expenses 86 55 76
Operating Income 4,737 5,435 6,708
Other Income (Expense)
Interest expense (150) (160) (171)
Interest income and other, net 178 92 143
Income Before Income Taxes 4,765 5,367 6,680
Income Tax Expense (Benefit) 1,061 1,308 1,601
Net Income 3,704 4,059 5,079

Diluted (Shares) 4,42,923 4,43,901 4,44,346

Merchandise Sales Revenue 1,49,351 1,63,220 1,92,052

Membership Fee Revenue 3,352 3,541 3,877

Prepared : Shaik Omer

DCF Model
Historical Balance Sheets - USD ($) $ in Millions 2018A 2019A 2020A 2021A
Current Assets
Cash and cash equivalents 6,055 8,384 12,277 11,258
Short-term investments 1,204 1,060 1,028 917
Receivables, net 1,669 1,535 1,550 1,803
Merchandise inventories 11,040 11,395 12,242 14,215
Other current assets 321 1,111 1,023 1,312
Total Current Assets 20,289 23,485 28,120 29,505
Other Assets
Property and Equipment, net 19,681 20,890 21,807 23,492
Operating lease right-of-use assets - 2,788 2,890
Other long-term assets 860 1,025 2,841 3,381
Total Assets 40,830 45,400 55,556 59,268
Current Liabilities
Accounts payable 11,237 11,679 14,172 16,278
Accrued salaries and benefits 2,994 3,176 3,605 4,090
Accrued member rewards 1,057 1,180 1,393 1,671
Deferred membership fees 1,624 1,711 1,851 2,042
Current portion of long-term debt 90 1,699 95 799
Other current liabilities 2,924 3,792 3,728 4,561
Total Current Liabilities 19,926 23,237 24,844 29,441
Other Liabilities
Long-term debt, excluding current portion 6,487 5,124 7,514 6,692
Long-term operating lease liabilities - 2,558 2,642
Other long-term liabilities 1,314 1,455 1,935 2,415
Total Liabilities 27,727 29,816 36,851 41,190
Equity
Preferred stock $.01 par value - - - -
Common Stock $.01 par value 4 4 4 4
Additional paid-in capital 6,107 6,417 6,698 7,031
Accumulated other comprehensive loss (1,199) (1,436) (1,297) (1,137)
Retained earnings 7,887 10,258 12,879 11,666
Total Costco Stockholders' Equity 12,799 15,243 18,284 17,564
Noncontrolling interests 304 341 421 514
Total Equity 13,103 15,584 18,705 18,078
Total Liabilities and Equity 40,830 45,400 55,556 59,268

Prepared : Shaik Omer

DCF Model
Historical Cash Flow Statements - USD ($) $ in Millions 2019A 2020A 2021A
Operating Activities
Net income including noncontrolling interests 3,704 4,059 5,079
Operating Activity Adjustments:
Depreciation and amortization 1,492 1,645 1,781
Non-cash lease expense - 194 286
Stock-based compensation 595 619 665
Other non-cash operating activities, net 9 42 85
Deferred income taxes 147 104 59
Changes in operating assets and liabilities:
Merchandise inventories (536) (791) (1,892)
Accounts payable 322 2,261 1,838
Other operating assets and liabilities, net 623 728 1,057
Net Cash Provided by (Used in) Operating Activities 6,356 8,861 8,958
Investing Activities
Purchases of short-term investments (1,094) (1,626) (1,331)
Maturities and sales of short-term investments 1,231 1,678 1,446
Additions to property and equipment (2,998) (2,810) (3,588)
Acquisitions - (1,163) -
Other investing activities, net (4) 30 (62)
Net Cash Provided by (Used in) Investing Activities (2,865) (3,891) (3,535)
Financing Activities
Change in bank payments outstanding 210 137 188
Proceeds from short-term borrowings - - 41
Proceeds from issuance of long-term debt 298 3,992 -
Repayments of long-term debt (89) (3,200) (94)
Tax withholdings on stock-based awards (272) (330) (312)
Repurchases of common stock (247) (196) (496)
Cash dividend payments (1,038) (1,479) (5,748)
Other financing activities, net (9) (71) (67)
Net Cash Provided by (Used in) Financing Activities (1,147) (1,147) (6,488)
Exchange Rate Changes on Cash and Cash Equivalents (15) 70 46
Net change in cash and cash equivalents 2,329 3,893 (1,019)
Cash and Cash Equivalents Beginning Of Year 6,055 8,384 12,277
Cash and Cash Equivalents End of Year 8,384 12,277 11,258
Supplemental Disclosure of Cash Flow Information:
Interest paid 141 124 149
Income taxes paid, net 1,187 1,052 1,527
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Cash dividend declared, but not yet paid 286 - -

Prepared : Shaik Omer