COST Research Note: Costco at the $1,040.55 valuation close: the franchise is not in doubt, the price is

The COST research family (page counts are those of the approved PDF editions, which this site does not host):

• Deep Dive: A very good business, priced for a better one (58 pages). Public preview; the Deep Dive page says how to read the full report.
• Research Note: Costco at the $1,040.55 valuation close: the franchise is not in doubt, the price is (7 pages).
• Technical Appendix: Method, schedules, bridge and sensitivities (29 pages).
• Learning Companion: How to read the Costco research (12 pages).

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Costco Wholesale Corporation (NASDAQ: COST) | Blockhaven Research Note | Evidence through 11-09-2026, valued at the 11-02-2026 close

The decision

Costco is the rare retailer with two revenue lines that behave differently. Membership fees were $5.91 billion in FY2026, equal to 50.6% of the $11.69 billion of operating income. That ratio is arithmetic, because Costco reports one operating income and no separate profit for the fees. The fees come from paid memberships, each with a free household card, and the renewal rate is 92.3% in the U.S. and Canada. Take the fees out of operating income and $5.78 billion remains, an analytical residual that places the shared cost base on the sale of goods and not an audited standalone profit. On $297.2 billion of sales it is a merchandise margin of 1.94%, which management deliberately keeps thin. FY2026 was a very good year on every line shown here: sales up 10.1%, fees up 11.0%, operating income up 12.5%, and diluted EPS of $20.76.

We rate it 1 out of 5 because the price asks for far more than that record supports. A ten-year continuation of FY2026's economics, with sales growth fading from 8.0% to 4.0%, fee growth from 7.5% to 4.5%, a merchandise margin of 1.91% and a discount rate of 8.66%, is worth $428.58 a share. The 11-02-2026 close is 142.8% above it. The generous upside case, which adds faster growth, a further fee increase and a margin of 2.25%, is worth $592.69, still 43.0% below that close. The downside, an enduring slide to a 1.55% margin with sales growth about a third lower than the reference's, is worth $305.08. These are conditional scenarios with no probabilities attached; none is a forecast.

Since the valuation date

Our values are those of 11-02-2026 and have not been rolled forward. The November 9, 2026 regular-session closing price of COST was $1,066.18, 2.5% above the $1,040.55 valuation close, so the reference of $428.58 is now 59.8% below the close (it was 58.8% below) and the upside of $592.69 is 44.4% below (it was 43.0%). Solved at that close, the reference matches the price at a rate of 5.19% (5.24% at the valuation close) and at a long-run merchandise margin of 7.96% (7.72%), and the relation between price and value is the one we rated. The 10-year Treasury par yield ended 11-06-2026 at 4.86% against the 4.91% behind our rate, five basis points lower, which the stored sensitivities size at about $2.75 to $4.32 a share on the reference and which we have left out of the rate; we have no reading for 11-09-2026. Costco's October sales release of 11-04-2026 reported net sales of $24.50 billion for four weeks, up 12.6%, and $54.52 billion for nine, up 12.8%, with total company comparable sales up 11.3% over nine weeks and 7.5% excluding gasoline and currency. That is a monthly datapoint lifted by gasoline prices and currency. Its measures differ from our full-year assumption of 8.0% net sales growth in period and in definition, since net sales include new warehouses and the comparable rate leaves them out, so the nine weeks neither confirm nor contradict it. The release is also silent on capital spending and fees, and it is not a reason to change any assumption or value. None of it argues for a different level.

What decides it

Two things. The first is the discount rate. We build it from the 4.91% yield on the 10-year Treasury par curve on 11-02-2026, a cost of equity that adds beta times an equity premium, and a small weight of debt. Beta of 0.85 and a premium of 4.5% are our assumptions, not measurements, so we show a band: beta from 0.70 to 1.00 and a premium from 4.0% to 5.5% give rates of 7.65% to 10.31%. At the low end the reference is $515.76 and the upside is $741.88; at the high end they are $337.89 and $447.96. The price sits above every scenario across the band, and the reference only matches it at 5.24%, about 33 basis points above the Treasury yield and below the 20-year and 30-year yields.

The second is what the price needs from the business. Holding everything else in the reference, matching the price takes a long-run merchandise margin of 7.72%, 4.03 times the 1.91% Costco earned in FY2026 without the tariff benefit, which means FY2036 operating income 2.49 times ours and an operating margin on net sales of 9.71% against 3.93% in FY2026. That is how far the cash flows would have to move, not a gap in definitions. Other lenses agree in direction: the business as it earns today, with no growth, is worth $252.17 a share, and a 20-year growth fade at the low end of the band, which is generous, gives $622.21. This is a statement about combinations the model can and cannot reach, not about what any investor believes.

What the longer record adds

Three findings from the filings sharpen the argument, and one of them cuts against our own reference. The first is that Costco keeps a higher merchandise margin than the two clubs we read (BJ's 1.51%, Sam's Club U.S. -0.09% against 1.94%), and the gap has widened over the periods we have. The definition is the same for all three, net sales less merchandise costs less SG&A over net sales with fees left out, so Sam's Club's operating income of $2.442 billion is more than covered by its $2.525 billion of membership and other income. At Costco the fees are 50.6% of operating income, a ratio and not a reported fee profit, and at BJ's 61.2%. Costco sells $2,143 per square foot against $1,155 at Sam's Club U.S., and per warehouse it sells $316.6 million against $154.8 million and $79.7 million. The franchise is not in doubt, and the filings give us no sign that a competitor is closing the gap.

The second is that the fee growth in our reference looks high against the members behind it. Paid members grew 3.8% in FY2026 after 6.3% and 7.3%, and Costco says the September 2024 fee increase accounted for about 30% of FY2026's 11.0% fee growth. With the increase removed, fee revenue per average paid member grew about 2.5%. If paid members grew in FY2027 at the FY2026 rate, our 7.5% fee growth with no further increase would need fee revenue per member to rise about 3.5%. A start of 6.0% instead would change the value by -$20.86 a share, which is a modest lever beside the rate.

The third is that the reference's capital spending from FY2028 is lighter than in any of the eleven years of history. Capital spending falls from 2.29% of total revenue in FY2027 to 1.50% in FY2028 and 1.34% by FY2036, against 2.12% in FY2026 and a low of 1.69% in FY2020. Holding FY2026's share from FY2028 would cost about $37.12 a share and give $391.46, 8.7% below the reference. That is an illustration read from the stored schedule and not part of our value, and it is the main reason a bear can argue we are still too high.

The best arguments on each side

The bull case says a membership business with 92.3% renewal deserves a rate near a utility's and a runway beyond ten years. The reference is worth $785.29 at a 6.00% rate, which is about a point above the Treasury yield, and the upside at that rate is worth $1,276.41, above the close. Inside the band we support, no scenario or stress we report reaches the close, and at the band's low rate the reference's growth fade would have to last 68 years to do so. The bear case says FY2026 is the best of the observed years on margin and on payables against inventory, and that the reference keeps it. At FY2023's 1.49% margin the reference is worth $384.34, the downside is worth $305.08, and an adverse joint stress gives $275.18. Inside the rate band we support, the price is above every value on both lists, and the bull values that pass it use a 6.00% rate we do not support, which is why the rating does not depend on which argument is better. We consider a rating of 2 a defensible alternative to the 1 we give, and we give 1 because matching the price needs a rate about 33 basis points above the Treasury yield or about two and a half times our FY2036 operating income, which we read as economics materially better than we expect.

The strongest counterargument

The stock has not closed below $850.00 in the 500 sessions we captured, and a business with fees that arrive before its costs, a 92.3% renewal rate and 10% sales growth may deserve a discount rate close to a utility's. If a market-built rate well below our band is right, our reference is too low and the price is a fair reading of a long compounder. We cannot dispose of that. The rate that would make our upside match the price is 6.52%, below the band, and the rate that would make the reference match it is 5.24%. What the market's record tells us is how it has priced Costco, not what the business is worth, so we weigh it as a counterargument and not as a reason to lift the rating. To reach the price on our economics the rate has to fall to 5.24%, or the business has to earn roughly two and a half times what we project by FY2036, and neither shows up in the filings.

What we watch and what would change the view

The October sales release has reported. The near-term evidence is the November sales release, expected in early December (the date is not confirmed), the first-quarter FY2027 report, which last year arrived in mid-December and whose date this year is not confirmed, and any membership fee change. We will read them for fee growth against the reference path, the renewal rate, and whether capital spending lands near the $7.5 billion management intends. Tariff refunds are a separate unknown: Costco says it paid about $500 million in IEEPA tariffs, class actions seek to pass refunds on to members, and we put no number on any exposure.

We would be more favorable on fee growth that holds up without another increase, a merchandise margin that rises without costing growth, a measured beta or premium that moved the whole band down, or a materially lower price, since the rating is tied to the price. We would be more cautious on a renewal rate that slips, fee growth moving toward the downside path, or spending that runs well ahead of the intention without matching sales. At the $1,040.55 close on 11-02-2026, the $1.47 quarterly dividend, annualized, is a yield of 0.57%, so the return comes from growth in the business and not from income.

Assumptions and disclosure

Company-level dollar amounts print in billions of U.S. dollars, or in millions where an amount is smaller than a billion, and the unit is always written; per-share values, prices and dividends are in dollars.

Sources: Costco's Form 10-K for the 52 weeks ended 08-30-2026, its fourth-quarter release (09-24-2026) and dividend declaration (10-14-2026), SEC XBRL data, the U.S. Treasury's par yield curve for 11-02-2026 and its table through 11-06-2026, Costco's October sales release (11-04-2026), and COST regular-session closing prices through 11-09-2026. Beta and the equity premium are our assumptions. The full argument, scenario table and sensitivities are in the Deep Dive.

This is research, not individualized advice; the rating is our assessment at one price and is never a recommendation to transact.

Important disclosures

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Opinions, ratings and interpretations reflect Blockhaven's research judgment as of the report date and may change as new evidence becomes available.

Positions and conflicts

As of November 6, 2026, Blockhaven's owner held no shares, options, or other direct derivatives in Costco Wholesale Corporation; had no material positions in Costco Wholesale Corporation through entities the owner controls; and had no paid financial relationships with Costco Wholesale Corporation.

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