Should you sell your Costco stock?

Roth Capital Markets analyst Bill Kirk lowered his expectations for Costco Wholesale (Costco Stock Quote, Chart, News, Analysts, Financials NASDAQ:COST) in a Sept. 26 report, maintaining a “Neutral” rating and $907.00 price target as comparable-store sales and renewal rates showed signs of slowing.

“Performance has slowed (one-year and two-year), despite more hours,” he said, noting that U.S. and total company comparable sales excluding fuel were at a six-quarter low. Renewal rates, while still high, also slipped in both North America and worldwide. Kirk argued that with Costco trading at nearly two standard deviations above its long-term valuation averages, around 29 times forward EBITDA versus a 10-year average of 19 times, “it is difficult to maintain valuation” at current levels.

For the fourth quarter, Costco reported net sales of US$86.2-billion, slightly ahead of consensus at US$86.1-billion, and earnings per share of US$5.87 versus expectations of US$5.80. U.S. comparable-store sales rose 6.0% year-over-year, down from 7.9% in the third quarter. Total company comp sales excluding fuel and FX rose 6.5%, also slowing from 8.0% in the prior quarter.

Canadian adjusted comp sales grew 8.3%, while international markets rose 7.2%. Membership renewal rates fell to 92.3% in the U.S. and Canada and 89.8% worldwide. Costco added new shopping hours and continued to see strong member tier trade-up, with Executive members now accounting for 74.2% of sales.

Kirk highlighted eight operational developments, including e-commerce sales of US$19.6-billion (+15% year-over-year), continued food and non-food strength, and fresh food comps in the high single digits. However, he cautioned that renewal rates are expected to continue decelerating in the coming quarters and that competitive pressure from Sam’s Club and BJ’s could limit future market share gains.

Kirk forecasts Costco will generate Adjusted EBITDA of US$12.8-billion on revenue of US$275.2-billion in fiscal 2025, improving to US$14.6-billion on US$292.6-billion in 2026 (from US$286.7-billion previously).

“Even with deceleration, metrics are still at peer-leading levels,” he said, adding that Costco’s private-label strategy and membership model remain highly competitive. “However, with smaller households and delayed household formation, we are less confident the warehouse club sub-segment can sustain market share gains.”

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