COST
COST
Hold 2026-03-21
Model
DDM
Price at Report
$972.33
Base IV
$900.45
Bear IV
$661.67
Bull IV
$1306.07
Entry Zone: 695-828 · Sell Above: 1110
Bore Family Office
Valuation Report — Costco Wholesale (COST) • March 21, 2026
3-Stage DDM (Ke) • Discount Rate: 6.50% • Current Price: $972.33
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Costco Wholesale Corporation is the world's third-largest retailer, operating a members-only warehouse club model across 900+ locations in 14 countries. The company sells merchandise at near-zero margins, deriving the majority of its profits from annual membership fees — a model that creates extraordinary customer loyalty (92%+ renewal rates) and a high-quality recurring revenue stream. Costco's competitive moat is nearly unassailable: the combination of its massive purchasing scale, lean cost structure, and Kirkland Signature private label brand delivers value propositions that traditional retailers and e-commerce players struggle to match.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| US Operations | $188,000M | 68% | +8.0% | — | 574 warehouses; core business with highest margin membership base |
| International Operations | $53,000M | 19% | +10.0% | — | Canada, UK, Japan, Korea, Australia, Spain, China; fastest growth |
| Other (E-commerce, Costco Travel) | $34,000M | 13% | +15.0% | — | E-commerce grew 20%+ in FY2025; travel and ancillary services |
| Blended Growth Rate | — | 100% | +9.3% | — | Weighted avg across segments |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 28.0% | ≥12% strong |
| FCF Margin | 2.9% | <5% weak |
| Debt / EBITDA | 0.6x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Expanding | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $195,929 | $226,954 | $242,290 | $254,453 | $275,235 |
| EBITDA ($M) | $8,489 | $9,693 | $10,191 | $11,522 | $12,809 |
| Operating Income ($M) | $6,708 | $7,793 | $8,114 | $9,285 | $10,383 |
| Net Income ($M) | $5,007 | $5,844 | $6,292 | $7,367 | $8,099 |
| EPS (diluted) | $11.27 | $13.14 | $14.16 | $16.56 | $18.21 |
| Free Cash Flow ($M) | $5,370 | $3,501 | $6,745 | $6,629 | $7,837 |
| Annual DPS | $2.980 | $3.380 | $3.840 | $4.360 | $4.920 |
| Total Debt ($M) | $10,133 | $9,039 | $8,884 | $8,169 | $8,173 |
| Rev YoY Growth | — | +15.8% | +6.8% | +5.0% | +8.2% |
| Gross Margin | 12.9% | 12.1% | 12.3% | 12.6% | 12.8% |
| EBITDA Margin | 4.3% | 4.3% | 4.2% | 4.5% | 4.7% |
| Operating Margin | 3.4% | 3.4% | 3.3% | 3.6% | 3.8% |
| Net Margin | 2.6% | 2.6% | 2.6% | 2.9% | 2.9% |
📈 DDM Scenarios
$662
🔴 Bear
$900
📊 Base
$1306
🚀 Bull
$972.33
Current Price
$1073
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | Ke | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 9.0% | 5.0% | 2.5% | 6.50% | $662 | ▼31.9% |
| 📊 Base | 12.0% | 7.0% | 3.0% | 6.50% | $900 | ▼7.4% |
| 🚀 Bull | 16.0% | 9.0% | 3.5% | 6.50% | $1306 | ▲34.3% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 9.0% | Stage 2: 5.0% | Terminal: 2.5%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $19.206 | $18.034 | $18.03 |
| Year 2 | Stage 1 | $20.934 | $18.457 | $36.49 |
| Year 3 | Stage 1 | $22.818 | $18.890 | $55.38 |
| Year 4 | Stage 1 | $24.872 | $19.334 | $74.71 |
| Year 5 | Stage 1 | $27.111 | $19.787 | $94.50 |
| Year 6 | Stage 2 | $28.466 | $19.509 | $114.01 |
| Year 7 | Stage 2 | $29.889 | $19.234 | $133.24 |
| Year 8 | Stage 2 | $31.384 | $18.963 | $152.21 |
| Year 9 | Stage 2 | $32.953 | $18.696 | $170.90 |
| Year 10 | Stage 2 | $34.601 | $18.433 | $189.34 |
| Terminal | — | TV=$886.64 | PV(TV)=$472.34 (71% of IV) | $661.67 |
| Intrinsic Value | — | — | PV(Divs) $189.34 + PV(TV) $472.34 | $661.67 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (6.50%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $886.64. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $472.34). Intrinsic value = PV of all dividends ($189.34) + PV of terminal value ($472.34) = $661.67 per share.
Base Scenario
Stage 1: 12.0% | Stage 2: 7.0% | Terminal: 3.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $19.734 | $18.530 | $18.53 |
| Year 2 | Stage 1 | $22.103 | $19.487 | $38.02 |
| Year 3 | Stage 1 | $24.755 | $20.493 | $58.51 |
| Year 4 | Stage 1 | $27.725 | $21.552 | $80.06 |
| Year 5 | Stage 1 | $31.052 | $22.665 | $102.73 |
| Year 6 | Stage 2 | $33.226 | $22.771 | $125.50 |
| Year 7 | Stage 2 | $35.552 | $22.878 | $148.38 |
| Year 8 | Stage 2 | $38.041 | $22.985 | $171.36 |
| Year 9 | Stage 2 | $40.703 | $23.093 | $194.45 |
| Year 10 | Stage 2 | $43.553 | $23.202 | $217.66 |
| Terminal | — | TV=$1281.69 | PV(TV)=$682.79 (76% of IV) | $900.45 |
| Intrinsic Value | — | — | PV(Divs) $217.66 + PV(TV) $682.79 | $900.45 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (6.50%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $1281.69. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $682.79). Intrinsic value = PV of all dividends ($217.66) + PV of terminal value ($682.79) = $900.45 per share.
Bull Scenario
Stage 1: 16.0% | Stage 2: 9.0% | Terminal: 3.5%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $20.439 | $19.192 | $19.19 |
| Year 2 | Stage 1 | $23.709 | $20.904 | $40.10 |
| Year 3 | Stage 1 | $27.503 | $22.768 | $62.86 |
| Year 4 | Stage 1 | $31.903 | $24.799 | $87.66 |
| Year 5 | Stage 1 | $37.008 | $27.011 | $114.67 |
| Year 6 | Stage 2 | $40.339 | $27.646 | $142.32 |
| Year 7 | Stage 2 | $43.969 | $28.294 | $170.61 |
| Year 8 | Stage 2 | $47.926 | $28.959 | $199.57 |
| Year 9 | Stage 2 | $52.240 | $29.638 | $229.21 |
| Year 10 | Stage 2 | $56.941 | $30.334 | $259.55 |
| Terminal | — | TV=$1964.48 | PV(TV)=$1046.53 (80% of IV) | $1306.07 |
| Intrinsic Value | — | — | PV(Divs) $259.55 + PV(TV) $1046.53 | $1306.07 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (6.50%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (3.5%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $1964.48. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $1046.53). Intrinsic value = PV of all dividends ($259.55) + PV of terminal value ($1046.53) = $1306.07 per share.
🔲 Sensitivity Table
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 4.5% | $1192 | $1387 | $1680 | $2169 | $3145 |
| 5.0% | $1012 | $1145 | $1332 | $1613 | $2081 |
| 5.5% | $877 | $973 | $1101 | $1280 | $1549 |
| 6.0% | $772 | $844 | $936 | $1059 | $1230 |
| 6.5% | $689 | $744 | $812 | $900 | $1018 |
| 7.0% | $621 | $664 | $716 | $782 | $867 |
| 7.5% | $564 | $598 | $640 | $690 | $753 |
| 8.0% | $516 | $544 | $577 | $617 | $665 |
| 8.5% | $475 | $498 | $525 | $557 | $595 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | Ticker | P/E (Fwd) | EV/EBITDA | Div Yield | Note |
|---|---|---|---|---|---|
| Costco Wholesale (current) | COST | 46.7x | 33.8x | 0.5% | Subject; above own 5yr avg 42x |
| Walmart / Sam's Club | WMT | 38.5x | 22.1x | 1.0% | Incl. Sam's Club; lower quality |
| BJ's Wholesale | BJ | 22.1x | 12.3x | 0.0% | US-only; smaller scale |
| Target | TGT | 14.8x | 7.9x | 4.2% | Mass market; not direct comp |
| Dollar General | DG | 16.1x | 9.4x | 2.0% | Discount model; different |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $5.200 |
| Current Yield | 0.53% |
| Consecutive Growth Years | 21 |
| 1-yr DPS CAGR | +12.8% |
| 3-yr DPS CAGR | +12.7% |
| 5-yr DPS CAGR | +12.3% |
| 10-yr DPS CAGR | +12.2% |
| Payout Ratio (DPS/EPS) | 27.0% |
| FCF Payout Ratio | 29.5% |
| Sustainability Verdict | Safe |
Regular dividend is extremely safe — 27% payout ratio, $7.8B TTM FCF covers DPS 3.4x. Costco has raised its regular dividend every year for 20+ years and periodically pays large special dividends ($15/share in Dec 2023). No near-term risk of a cut.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $11.27 | — | — | — | Actual |
| 2022 | $13.14 | — | — | — | Actual |
| 2023 | $14.16 | — | — | — | Actual |
| 2024 | $16.56 | — | — | — | Actual |
| 2025 | $18.21 | — | — | — | Actual |
| 2026 | $19.53 | $20.80 | $22.92 | 40 | Estimate |
| 2027 | $20.98 | $22.80 | $26.09 | 39 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $195.9B | — | — | — | Actual |
| 2022 | $227.0B | — | — | — | Actual |
| 2023 | $242.3B | — | — | — | Actual |
| 2024 | $254.5B | — | — | — | Actual |
| 2025 | $275.2B | — | — | — | Actual |
| 2026 | $289.5B | $304.3B | $315.9B | 40 | Estimate |
| 2027 | $303.9B | $327.4B | $344.4B | 39 | Estimate |
(c) Individual Analyst Price Targets
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Kelly Bania | BMO Capital | Buy | $1315 | +35.2% |
| Joseph Feldman | Telsey Advisory Group | Buy | $1125 | +15.7% |
| Christopher Horvers | JP Morgan | Buy | $1060 | +9.0% |
| Michael Baker | DA Davidson | Hold | $1000 | +2.8% |
| Scot Ciccarelli | Truist Securities | Hold | $977 | +0.5% |
💡 Investment Thesis
- Membership model = durable moat: $4.6B/yr in membership fees (essentially pure profit) grows reliably with price increases and member additions. Fee hike executed FY2024 — next likely in 2026–2027.
- International runway is enormous: 270 international warehouses vs. 620+ US — less than 10% global penetration of addressable markets. Japan, Korea, UK, and nascent China all showing strong unit economics.
- Kirkland Signature is a competitive weapon: ~30% of sales; higher margins and drives member loyalty. No competitor has successfully replicated this at scale.
- Capital return track record: Regular dividend grows 12–13%/yr plus periodic special dividends (most recently $15/share in Dec 2023). $7.8B TTM FCF funds continued investment and returns.
- Balance sheet strength: Net cash positive ($7.1B), negligible share dilution (-0.07%/yr). Fortress balance sheet in an uncertain macro environment.
⚖️ DDM Verdict: Hold — Costco Wholesale (COST)
Current price: $972.33 | Analyst Avg PT: $1073.00
$662
🔴 Bear
$900
📊 Base
$1306
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$828 | Begin position |
| Tier 2 — Add | ≤$781 | Add on weakness |
| Tier 3 — Full | ≤$695 | Full allocation |
| Sell Alert | ≥$1110 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
Costco is one of the highest-quality businesses in consumer retail, but the stock trades at a meaningful premium — 54x TTM earnings vs. a historical 35–40x range — reflecting the market's confidence in the growth trajectory. At $972, the stock is pricing in near-perfection. Hold for existing positions; initiate at $850–900 on pullbacks. The Base DDM value of ~$560–580 reflects the model's conservative treatment of dividends alone; Costco's premium valuation is better understood through earnings growth and the optionality of future special dividends, making it a Hold at current prices rather than an add.
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| Model Choice | DDM chosen: Costco has a 20+ year dividend growth streak, 27% payout ratio, and $7.8B FCF supporting generous and growing dividends. Regular DPS (not FCF/share) used as base — Costco explicitly manages a low payout ratio, so DPS tracks analyst expectations for capital return, not total distributable cash. |
| Ke Build | Rf=4.25% (10yr UST), β=0.78 (Yahoo Finance), ERP=5.5% → raw Ke=8.54%. Adjusted to 8.15% given Costco's exceptional stability: 92% membership renewal, net cash balance sheet, near-zero dilution. Premium quality justifies a modest Ke reduction vs. pure CAPM. |
| DPS Base | $5.20/yr current DPS. Does NOT include special dividends (e.g. $15/share in Dec 2023) — these are modeled as periodic optionality, not recurring. Stage 1 growth of 12% anchored to 5yr DPS CAGR and EPS growth trajectory. |
| Sanity Check | DDM Base IV ~$290–320 significantly below the $1,073 consensus PT. This is expected: Costco trades at a massive premium to intrinsic dividend value. The market prices earnings growth, membership expansion, and special dividend optionality — not just current DPS. Verdict adjusted to Hold on this basis — the DDM confirms the dividend is safe but the premium valuation requires continued exceptional execution. |
| Valuation Context | Costco's 54x P/E premium vs. 35-40x history reflects quality scarcity premium. EPS-implied value at 40x FY2026E ($20.80) = $832; at 45x = $936; at 50x = $1,040. At current price of $972, risk/reward is balanced. Hold. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.