Costco executes superbly but at 45 times earnings the price demands perfection. Steady growth supports $958 in twelve months, about 2% upside.
Key points
- $5.91 billion in FY26 membership fees grew 11% and funds price cuts while renewal holds at 92.3% in the US and Canada.
- 7% adjusted comparable sales in FY26 plus 7.6% in September shows traffic-led demand as the fee-increase tailwind ends.
- $15.82 billion in operating cash flow covers $6.44 billion capex and the $7.5 billion FY27 build plan with cash on hand.
The call
Great execution already carries a demanding price. At current levels Costco trades at 45 times last year earnings, so the market requires steady high single digit sales growth with stable thin margins.
Diluted EPS climbs with Q4 seasonal peaks ($ per share)Source: Rallies historical EPS retrieved Oct 8 2026; some quarters missing in provider series.
Growth can continue but multiple compression offsets it. I expect $328.9 billion FY27 revenue and $22.71 in EPS on mid single digit comps and new warehouses. Growth to $24.76 in FY28 at 38.7 times earnings supports my target.
Valuation
| Driver | Figure |
|---|
| FY27E revenue | $328.9 billion |
| FY27E EPS | $22.71 |
| FY28E EPS | $24.76 |
| Target multiple | 38.7 times |
| 12-month target | $958 |
Costco rarely trades below 35 times next earnings given renewal and cash predictability. At 38.7 times FY28 earnings my target implies about 2% upside plus a 0.6% dividend. Risk and reward look balanced, so a Hold fits.
Risks
- Traffic fades if value perception slips, which I would see in adjusted comps falling below 4% for two months.
- Gasoline deflation shrinks headline sales and leverage, which I would see in negative ticket growth and rising SG&A ratios.
- Heavy warehouse and supply-chain capex disappoints, which I would see in openings missing plan and slower turns.
What would change my mind
Sustained double-digit adjusted comps with core margin expansion would justify a higher multiple and a Buy.