RBC Capital Markets has launched coverage of Costco Wholesale (NASDAQ: COST), assigning a Sector Perform rating and a $1,000 price target. The firm praised the warehouse retailer’s competitive positioning and medium-term growth prospects, while cautioning that the stock’s current valuation already reflects many of those positives.
Analyst Steven Shemesh characterized Costco as "one of the best stories in retail," pointing to steady market share gains, a loyal, high-income customer base and a negative cash conversion cycle as core advantages. RBC’s proprietary food retail market share work indicates Costco gained 67 basis points of share in 2024 and a further 77 basis points in 2025.
RBC emphasized the importance of membership fees to Costco’s profitability. More than 50% of operating profit is estimated to come directly from membership revenues, and the company’s worldwide renewal rate of about 89.7% gives the analyst what he described as "a high degree of EPS visibility." Based on these factors, RBC projects 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 contribution from retail media.
The firm’s data science work points to additional room for physical expansion - roughly up to 660 more U.S. stores is the estimate offered - and sees e-commerce as still in the "relatively early innings," with Costco’s digital penetration at about 10% compared with club peers near 16%.
RBC also flagged potential capital return implications, estimating that Costco could pay a special dividend of roughly $23 per share within the next one to two years.
Despite these positives, Shemesh highlighted valuation as the primary constraint on near-term upside. At roughly 37 times RBC’s fiscal 2028 EPS estimate of $25.00 - about 1.9 times the S&P 500 multiple - the analyst said he "struggles with the path to significant upside," which informed the Sector Perform rating.
Summary
RBC begins coverage on Costco with a neutral rating and $1,000 target, recognizing strong membership economics, market share momentum and growth opportunities in stores and e-commerce, while warning that a premium valuation limits meaningful upside at current levels.
Key points
- RBC assigns Sector Perform and $1,000 target, noting Costco's business strengths but limited upside due to valuation.
- Membership fees account for over half of operating profit with a roughly 89.7% worldwide renewal rate, underpinning EPS visibility.
- Growth runway includes an estimated ~660 additional U.S. stores and room for higher e-commerce penetration (10% today vs ~16% for club peers).
Risks and uncertainties
- Rich valuation - the stock trades at about 37 times RBC’s fiscal 2028 EPS estimate of $25.00, roughly 1.9 times the S&P 500 multiple - which constrains upside potential for investors in the near term.
- Execution risk around store expansion and e-commerce improvement - the firm’s growth scenarios depend on realizing up to approximately 660 additional U.S. stores and improving digital penetration from current levels.
- Timing and realization of capital returns - the $23 per share special dividend is an estimate that could be subject to change in timing or amount over the next one to two years.