At $951 a share, Costco feels cheap relative to where it was trading six weeks ago. That is not an obvious statement for a stock at 53 times earnings. But the pullback from Costco’s all-time high closing price of $1,094.32, reached on May 19, 2026, has created a specific kind of opportunity: a high-quality compounder temporarily repriced by rotation, not fundamentals.
Here is the investment question worth asking. The business just delivered one of the strongest quarters in its history. Traffic is growing. Digital sales are surging. The membership model just survived a fee hike with almost no churn. Bernstein analyst Zhihan Ma named Costco her top retail pick for the second half of 2026 and raised her price target to $1,194, well above the stock’s recent close near $951. So what exactly are investors waiting for?
The Q3 Numbers Were Not Normal
Net quarterly sales reached $69.15 billion, up 11.6%, while total revenue including membership fees rose to $70.53 billion, beating Wall Street estimates of $69.62 billion. Net income climbed to $2.19 billion, or $4.93 per diluted share, compared with $1.90 billion and $4.28 per diluted share in the same quarter last year.
The traffic number is the one that really matters here. Global traffic rose 2.4%, while average ticket increased 7.3%, reflecting higher spending levels and a favorable merchandise mix. Both moving in the right direction at the same time is unusual. The typical K-shaped retail dynamic has one going up while the other falls. Costco managed to grow visits and basket size simultaneously.
Digitally enabled comparable sales surged 21.5%, and ecommerce site and app traffic grew 37%. That is not a legacy retailer fighting digital disruption. That is a legacy retailer becoming a digital platform on top of a physical footprint.
The Membership Engine Nobody Respects
This is where the Costco thesis always sounds boring until you do the math.
Over the first 24 weeks of fiscal 2026, Costco generated $2.68 billion in membership fees — fees that are virtually all profit — which bumped the company’s total operating income to just over $5 billion. Without those fees, the company effectively cannot operate the way it does. The membership fees stir the drink and make Costco profitable.
The fee hike in 2024 was supposed to hurt renewals. It did not. U.S. and Canada membership renewal rates stood at 92.2%, up 10 basis points from the prior year, while worldwide renewal rates held at 89.7%. Raising prices and increasing retention. That is the definition of pricing power.
The data shows that Costco’s brand power and customer loyalty likely would enable management to raise fees sooner than in another seven years from now. If that happens earlier than consensus expects, the earnings math gets meaningfully better than current estimates suggest.
The Special Dividend and What It Signals
Bernstein’s H2 2026 call is not just about comparable sales. The analyst wrote that she expects Costco to generate about 6% to 7% comparable sales growth, excluding gas and foreign exchange, which, coupled with the prospect of a special dividend, should support the stock in the near term.
Costco has paid special dividends before. The pattern tends to follow periods of strong cash generation. Costco ended Q3 fiscal 2026 with $18.95 billion in cash and cash equivalents, compared with $14.16 billion at the end of fiscal 2025. That is a $4.8 billion increase in cash in nine months. The balance sheet is building toward something.
Operating cash flow for the first 36 weeks of fiscal 2026 increased to $11.13 billion from $9.47 billion in the year-ago period. That cash generation rate, against a market cap near $420 billion, implies a cash flow yield that gives management significant optionality on capital return.
The Bear Case Is Real but Narrow
The honest counterargument: Costco’s price-to-earnings ratio stands at 53, and even using forward earnings estimates, it remains at 49, necessitating significant earnings growth to justify such a high valuation. At those multiples, any guidance miss or traffic deceleration will hit the stock hard.
Management itself noted that consumers remain focused on value amid macroeconomic uncertainty, elevated gasoline prices, and potential tariff-related impacts. The macro environment is not fully benign. If the consumer weakens more than expected heading into the fall, the ticket growth that has been masking softer traffic trends could reverse quickly.
What September 24 Will Decide
The consensus EPS forecast for Q4 fiscal 2026 stands at $6.55, which would represent significant sequential and year-over-year growth. That is a high bar. The question is whether the digital momentum, international expansion, and continued membership growth can clear it.
The company remains optimistic about long-term growth opportunities across warehouse expansion, digital engagement, retail media, pharmacy, AI-enabled shopping experiences, and international markets, particularly China, Canada, Japan, Korea, and Spain.
What is worth watching is not whether Costco beats by a few cents. It is whether management comments on the special dividend, and whether the Q4 comparable sales number, ex-gas, holds the 6% to 7% corridor Bernstein is modeling. Those two data points will tell investors whether the 13% pullback from the all-time high was a discount or a warning.
