Haverhill Financial Research · October 26, 2026
Summary: Haverhill price target $1,120 (12 months)
Costco sells groceries at close to cost and makes its money on the card in your wallet. In fiscal 2026 it collected $5.91 billion of membership fees, up 11%, against $11.69 billion of operating income — so roughly half the profit arrives before a single pallet is sold. Net sales were $297.3 billion, up 10.1%, with comparable sales up 6.6% excluding fuel and currency. Renewal rates were 92.3% in the United States and Canada. This is one of the most dependable businesses in retail, and almost nobody disputes that. The dispute is the price. At $1,003.32 the shares trade at about 48 times trailing earnings for a company growing profits in the low teens. Our 12-month price target of $1,120 is about 12% above the current price, so we rate the shares Hold.
The engine is intact. Paid members reached 84.1 million, and 42.3 million of them pay for an Executive membership — about half the base, and the source of roughly three quarters of worldwide sales.
Two tailwinds are fading. Membership fee growth slowed to 7.3% in the fourth quarter as the September 2024 fee increase finished lapping, and about $184 million of tariff refunds in the quarter will not repeat.
Our view: we would buy this business at a lower price without hesitating. At 48 times earnings, the multiple has to hold for the next two years just to earn a respectable return.
Investment thesis in brief
Our thesis: Costco converts customer loyalty into a subscription, and the subscription is worth more than the retailing. What it is not, at this price, is cheap enough to absorb a bad year.
What we like. The flywheel is genuinely self-reinforcing. Costco restricts itself to roughly a tenth of the items a supermarket carries, buys enormous volumes of each, caps its markup, and passes the saving on. Members renew because the card pays for itself, and the fees fund the low prices that make them renew. Traffic rose 3.3% worldwide in the fourth quarter, which is the cleanest evidence that the mechanism still works: people are coming more often, not just spending more per visit.
What the market may be missing. The Executive tier is doing more work than the headline member count suggests. It grew 9.4% over the year, faster than the overall base, and now represents about half of paid members while generating about 75% of worldwide sales. Each conversion from basic to Executive roughly doubles the annual fee and tends to raise spending. That mix shift is a quiet second engine alongside unit growth.
What holds us back. The fourth quarter flattered itself in two ways. Membership fee income grew 7.3%, down from about 14% in the first quarter, because the September 2024 price increase had finished lapping — management confirmed it was the last quarter with a year-over-year benefit. And operating profit included roughly $184 million of tariff refunds, worth about $0.15 a share, which the company described as non-recurring. Strip both out and the underlying picture is good rather than spectacular, against a multiple that assumes spectacular.
How does the business actually make money?
Costco has two income statements inside one company, and they behave completely differently.
Merchandise ($297.3 billion of net sales, gross margin about 11.1%). This is close to a break-even operation by design. After selling, general and administrative costs of about 9.15% of sales, very little is left. Costco deliberately caps markups — the limit is well below what a supermarket would charge — because low prices are the product.
Membership fees ($5.91 billion, almost entirely profit). A US Gold Star membership costs $65 and an Executive membership $130, the latter including a 2% reward on most purchases. There is essentially no cost of goods against this line, which is why it accounts for about half of operating income.
Why the renewal rate is the number to watch. At 92.3% in the United States and Canada and 89.8% worldwide, both up 10 basis points over the quarter, the fee is behaving like a subscription with very low churn. A one-point fall in renewals would take roughly $60 million off a line that is nearly all margin, and would signal that the value proposition had slipped.
Where the growth comes from. Three places: more warehouses, more members per warehouse, and more sales per member. Costco ended fiscal 2026 with 939 warehouses and plans 33 openings in fiscal 2027, including five relocations. E-commerce, long an afterthought here, grew 20.9% for the year and is now about 11% of net sales.
What do the numbers say?
Fiscal 2026 net sales were $297.25 billion, up 10.1%; operating income $11.69 billion, up 12.5%; and diluted earnings $20.76 a share, up 14.0%. Comparable sales excluding fuel and currency rose 6.6%. September 2026 sales, reported on October 7, were $30.02 billion, up 13.0%, with adjusted comparable sales up 7.6% — though a later Labour Day flattered that by roughly half a point.
Costco's quarters are an awkward shape: three of twelve weeks and a fourth of sixteen. Comparing raw quarterly totals is therefore meaningless. Dividing by the number of weeks is not, and it produces a much clearer picture of the trend.
Three things investors should know.
Growth is traffic, not just inflation. Fourth-quarter worldwide traffic rose 3.3% and the average basket 5.9%, of which 3.3% excluding fuel and currency. A retailer growing on footfall is in better health than one growing on price.
The margin barely moves, and that is the point. Fourth-quarter gross margin was 11.02%, down 11 basis points, while selling costs improved to 8.94% of sales. Costco does not expand margins; it converts scale into lower prices and collects the fee.
The fee increase has fully lapped. The September 2024 rise contributed less than one point to fourth-quarter fee growth. On a historical cadence of roughly every five to seven years, the next one is unlikely before the end of the decade.
Competition and moat
Costco competes with everyone who sells food and almost nobody on its own terms.
Who it competes with. Walmart's Sam's Club is the direct analogue, Walmart itself the scale competitor, Amazon the convenience competitor, and Aldi and Lidl the price competitors in several markets. None of them run the model in the same way: most use membership or subscription as a loyalty add-on, whereas for Costco it is the profit.
Where the moat is real. Restricting range to roughly a tenth of a supermarket's assortment concentrates purchasing power into each item, which produces costs rivals with wider ranges cannot match. The Kirkland Signature private label — priced meaningfully below national brands — compounds that. The result is a price gap that is structural rather than promotional, and a renewal rate above 90% that proves members can feel it.
Where it is thin. Costco is not convenient. Warehouses are large, far apart and busy, and the model depends on customers accepting that trade. It is also under-represented in the fastest-growing part of retail: e-commerce grew 20.9% but remains about 11% of sales. And the business carries more exposure to tariffs than its domestic image suggests, which is precisely why the refunds showed up in the fourth quarter.
What is it worth?
We value Costco at $1,120 per share over the next 12 months, to October 2027, as a probability-weighted blend of three cases. That is about 12% above today's price, which supports a Hold.
Our method. Costco's earnings are stable and its cash flow tracks them closely, so we value it on earnings. By October 2027 the market will be looking at fiscal 2028, the year ending August 2028. We grow earnings from the fiscal 2026 base of $20.76 a share at roughly 12% a year, which is slightly below the 14% just delivered because the fee increase and the tariff refunds do not repeat. We then apply a price-to-earnings multiple and weight the cases 25% bear, 50% base, 25% bull.
Why these numbers. The base case assumes nothing dramatic: comparable sales near 6%, around 30 net new warehouses a year, continued Executive mix shift, and a multiple of 42 times — below today's 48 times, because we think some of the current premium reflects the fee increase and tariff refunds that have now passed. The bear case is not a broken business; it is the same business at the multiple it carried for most of the past decade.
What the price implies. At $1,003.32 and 48 times trailing earnings, the market is assuming the premium multiple persists. If it does, and earnings compound in the low teens, the shares work. If the multiple drifts back toward 40 times, two years of solid earnings growth gets absorbed by the de-rating. That asymmetry is the whole argument for waiting.
What are the real risks?
The multiple, first and last. At 48 times trailing earnings for low-teens growth, Costco is priced for certainty. Most of the downside in our bear case comes from the multiple, not the business.
Membership fee growth has normalised. From about 14% in the first quarter to 7.3% in the fourth, with no new increase announced and the historical cadence pointing to the end of the decade.
Tariff refunds do not repeat. About $184 million arrived in the fourth quarter and a similar amount in the first quarter of fiscal 2027, worth about $0.15 a share in the quarter. Underlying tariff and inflation costs remain — the fourth-quarter LIFO charge was $152 million against $43 million a year earlier.
Reported comparisons are flattered by fuel and currency. The gap between reported and adjusted comparable sales was 2.7 points in the fourth quarter. Both move, and neither is in management's control.
Mix quality. Gold and bullion sales and GLP-1 prescriptions have both contributed to comparable sales. Neither carries normal retail economics, and both could fade.
Execution is the only lever. With margins fixed by design, Costco cannot defend earnings by raising prices. If traffic slows, there is nothing to pull.
What would change our mind?
Our Hold is about price, not quality. We would be buyers of this business on a worse day.
Signals that would move us to Buy
A membership fee increase announced, which would add a nearly pure-margin step up to the most valuable line.
Adjusted comparable sales above 7% sustained across two quarters.
The price falls below about $870 with no change in our earnings view.
E-commerce above 14% of net sales while warehouse traffic keeps growing.
Signals that would move us to Sell
Renewal rates falling below 91% in the United States and Canada.
Adjusted comparable sales below 4% in any quarter without a fuel or currency explanation.
Executive membership penetration falling, which would mean the mix engine has stalled.
The price runs above about $1,290 with no change in our earnings view.
Catalysts to watch
Early November 2026: October sales results. Costco reports monthly, which makes it one of the few large retailers where the trend is visible in close to real time.
December 10, 2026: first-quarter fiscal 2027 results, after the market closes.
Through fiscal 2027: 33 planned warehouse openings including five relocations, with four in Europe, five in Canada and one in Mexico.
Open-ended: any announcement on membership fees, and any special dividend. The last special dividend was $15 a share declared in December 2023, on a rough cadence of every three to four years.
Sources and disclosures
Every company figure in this report comes from Costco's own filings and results releases, linked below. The analysis, model and price target are Haverhill Financial Research's own work.
Disclosures. Haverhill Financial Research is a publisher of general financial commentary. This report is not personalized investment advice and does not consider any reader's financial situation; readers should do their own research. Price targets are estimates of value, not guarantees. Haverhill ratings follow our published bands: Buy when our 12-month target is at least 15% above the price, Sell when it is at least 15% below, Hold in between. The author of this post does not hold a position in Costco. Price data as of the Nasdaq close on October 23, 2026.
