RBC says Costco is one of retail’s best stories, but flags rich valuation

Investing.com -- RBC Capital Markets has initiated coverage of Costco Wholesale (NASDAQ: COST) with a Sector Perform rating and a $1,000 price target, praising the retailer's business model and growth prospects while arguing that the positives are already reflected in the share price.

Analyst Steven Shemesh said Costco "is one of the best stories in retail," highlighting consistent market share gains, a loyal high-income customer base and a negative cash conversion cycle as key competitive advantages.

RBC's proprietary food retail market share analysis suggests Costco gained 67 and 77 basis points of share in 2024 and 2025, respectively.

Shemesh said more than 50% of Costco's operating profit is driven directly from membership fees, with a worldwide renewal rate of approximately 89.7%, providing "a high degree of EPS visibility."

RBC sees potential for high-single-digit to low-double-digit annual EPS growth over the medium term, supported by improving e-commerce economics and a growing retail media contribution.

On growth opportunities, RBC's data science analysis suggests potential for up to approximately 660 additional U.S. stores, while e-commerce, currently at 10% digital penetration versus club peers at approximately 16%, remains "relatively early innings." The firm also estimated a $23 per share special dividend could be paid within the next one to two years.

However, at approximately 37 times RBC's fiscal 2028 EPS estimate of $25.00, representing 1.9 times the S&P 500 multiple, Shemesh said he "struggles with the path to significant upside," making Sector Perform the appropriate rating at current levels.

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