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

Key Morningstar Metrics for Costco Wholesale

• Fair Value Estimate: $560.00
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Costco Wholesale’s Earnings

We plan to raise our fair value estimate for Costco Wholesale COST by a high-single-digit percentage after the warehouse club behemoth posted strong fiscal 2025 second-quarter results.

The increase 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% in 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 United States and Canada matures.

Companywide comparable sales expanded 9% (excluding gas and currency impacts), underpinned by about 6% growth in customer traffic and a 3% gain in average ticket. Internationally, sales grew by 10.0%, while comparable sales in the US expanded 8.6%. Notably, domestic growth comfortably outpaced the results from competing retailers under our coverage.

Costco’s enviable top-line trajectory reinforces its wide moat rating, as shoppers increasingly gravitate to the firm’s attractive price points and compelling treasure hunt experience. An operating margin of 3.6% expanded by 10 basis points, primarily due to a modest improvement in gross margin and favorable operating leverage.