Chicago, IL – May 7, 2025 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Costco Wholesale Corp. COST, Ross Stores, Inc. ROST, Dollar General Corp. DG and Target Corp. TGT.
Here are highlights from Tuesday’s Analyst Blog:
Costco Continues Trading at a Premium: Should You Refrain from Buying the Stock?
Costco Wholesale Corp., a prominent player in the membership-based retail sector, is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 52.96X, which positions it at a premium compared to the industry's average of 32.41X and the S&P 500's 20.97. The stock is also trading above its median P/E level of 50, observed over the past year. The valuation does suggest that Costco is overvalued.
Has Costco's Stellar Price Run Already Capped Its Upside?
Despite the elevated valuation, investors have shown strong confidence in Costco. The stock has risen 11.9% over the past month, outperforming the industry. However, such a steep surge in the stock price may be limiting the near-term upside. With much of the optimism already priced in, it becomes increasingly difficult to justify fresh entry at these levels without a meaningful pullback or further acceleration in growth.
Costco has outperformed its peers, such as Ross Stores, Inc., Dollar General Corp. and Target Corp.. Shares of Ross Stores and Dollar General have risen 10.6% and 8%, respectively, while Target has declined 0.4% in the past month.
Costco's resilient, membership-based business model remains a key engine of growth, underpinned by exceptionally high renewal rates and operational efficiency. In the second quarter of fiscal 2025, renewal rates stayed robust — 93% in the United States and Canada and 90.5% globally — reflecting strong customer loyalty. This, combined with Costco's bulk purchasing power and efficient supply chain, enables the company to maintain competitive pricing and withstand economic pressures better than many peers.
Membership trends continue to support Costco's momentum. The company ended the second quarter of fiscal 2025 with 78.4 million paid household members, marking a 6.8% increase year over year. Executive memberships, a more profitable category for Costco, grew by 9.1% to reach 36.9 million, accounting for 47.1% of all paid members and driving 73.8% of global sales. Membership fee income climbed 7.4%, aided by a recent fee hike, which added approximately 3% growth in the quarter.
Costco's digital transformation also continues to gain traction. E-commerce comparable sales grew 20.9%, or 22.2% adjusted for foreign exchange, in the second quarter. This reflects Costco's successful digital transformation strategy, as it improves online product assortment and fulfillment efficiencies. As more shoppers embrace omnichannel retail, Costco's digital strength is playing an increasing role in driving traffic and overall sales performance.
On the brick-and-mortar front, expansion efforts remain on track. While only one new warehouse was opened during the second quarter, the company plans to accelerate its pace, targeting 28 new locations — including 25 new warehouses and three relocations — by the end of fiscal 2025.
Competitive Landscape: Can Costco Stay Ahead?
Costco's impressive sales figures are part of a larger retail picture where competition is intensifying. Rivals like Ross Stores, Dollar General and Target are investing in expanding their capabilities and enhancing customer experience.
Moreover, margins remain a critical area to monitor, with potential concerns stemming from any deleverage in the selling, general and administrative rate. Additionally, foreign exchange volatility and tariffs on key imports create uncertainty. Meanwhile, consumer spending is shifting toward essentials, with discretionary spending seeing weaker demand.
How Consensus Estimates Stack Up for Costco
Over the past seven days, the Zacks Consensus Estimate for the current fiscal year has risen by a penny to $17.96. However, for the next fiscal year, the Zacks Consensus Estimate has decreased by a couple of cents to $19.73. These estimates indicate expected year-over-year growth rates of 11.5% and 9.9%, respectively.
COST: A Quality Stock, but a Hold for Now
Costco's strong fundamentals, including a growing membership base, solid e-commerce sales and strategic investments, continue to support its market leadership. While the stock's premium valuation warrants caution, its resilient business model offers a compelling case for long-term investors. The prudent move for investors may be to hold existing positions rather than chase the stock at its current highs. Waiting for a better entry point could offer a more favorable risk-reward balance. Costco currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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