Is Costco Stock Still the Safest Bet? Data Backs the Defensive Case

At a time when volatility continues to haunt, Costco Wholesale Corporation COST remains a poster child for defensive investing. The company's unique membership-based model and pricing discipline have solidified its position as a resilient force in the retail space. A key indicator of this strength is the 90.2% global membership renewal rate, alongside a 5.2% increase in worldwide shopping traffic during the third quarter of fiscal 2025.

Membership revenues continue to be a key pillar for Costco. In the third quarter, income from membership fees increased 10.4% year over year, providing a steady revenue stream in a volatile environment. Paid memberships grew 6.8% to 79.6 million, with renewal rates remaining steady at 92.7% in the United States and Canada. Executive memberships, which now account for 73.1% of total sales, demonstrate member loyalty.

Costco's operational agility further bolsters its defensive profile. The company has effectively navigated tariff disruptions and supply-chain constraints by rerouting goods and sourcing more from local suppliers. This flexibility helps contain cost pressures and allows it to offer the best possible prices. For example, by manufacturing or procuring Kirkland Signature items within the countries where they are sold, Costco has reduced shipping expenses and improved price consistency.

Kirkland Signature continues to gain traction, with its sales outpacing overall company growth and penetration up 50 basis points year over year. Additionally, initiatives like the 'Buy Now, Pay Later' option and e-commerce expansion reflect Costco’s forward-thinking approach, strengthening its defensive appeal in an evolving retail landscape.

Costco’s Price Performance, Valuation and Estimates

Costco, which competes with  Dollar General Corporation DG and Target Corporation TGT, has been a standout performer, with shares rallying 18.8% in the past year, outpacing the industry’s growth of 11.9%. Shares of Dollar General and Target have declined 11.7% and 25.5%, respectively, in the aforementioned period.
 

From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 48.15, higher than the industry’s ratio of 31.77. COST carries a Value Score of D. Costco is trading at a premium to Target (with a forward 12-month P/E ratio of 12.70) and Dollar General (17.85). 
 

The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings per share implies year-over-year growth of 8.1% and 11.6%, respectively. 
 

Costco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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