Costco Earnings: Top-Line Growth Is Still Best in Class, but Shares Baking in Lofty Expectations

We plan to raise our $560 fair value estimate on wide-moat Costco by a high-single-digit percentage after the warehouse club behemoth posted strong fiscal 2025 second-quarter results. The increase in our fair value stems from a couple of key factors. First, we expect to raise our forecast for companywide comparable sales growth in fiscal 2025 to about 7% from 6%. Second, we plan to bring our operating margin forecast closer to 5% by 2034 (the end of our explicit forecast period), up from our current 4.5% estimate, as the firm’s relative scale advantage should translate into a gross margin benefit over time. Despite our favorable view of Costco’s competitive position and the planned uptick to our fair value, shares look very overvalued, trading at about 55 times our estimate for fiscal 2025 earnings. We surmise that the market is extrapolating Costco’s growth trajectory over the previous five years (companywide comparable sales growth averaged 9% from 2020-24) well into the future. In contrast, we expect comp growth to settle into a mid-single-digit trajectory in the long term as its stout presence in the US and Canada continues to mature.