Costco Earnings: Attractive Merchandise and Low Prices Drive Continued Traffic Growth, Share Gains

We plan to modestly raise our $540 fair value estimate for wide-moat Costco following its solid fiscal 2025 first-quarter earnings release, primarily due to the time value of money. Results were mostly in line with our expectations as net sales expanded 7.5%, and adjusted earnings per share of $3.82 modestly trailed our $3.98 forecast. We continue to think that Costco’s attractive merchandise assortment and vast scale should drive further market share gains and a widening cost advantage in the long run. As such, we still model 6%-7% top-line growth in the long term and a midcycle operating margin above 4% (versus 3.6% in fiscal 2024). However, we think shares look overvalued, trading at more than 50 times our forecast for fiscal 2025 EPS.