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Key Takeaways
- Costco had a solid quarter and showed momentum in its Q1 FY2026 results, providing investors with reasons to be optimistic.
- Cash flow is positive, the cash pile is building, and a special dividend payment is on the horizon.
- Analysts lifted price targets and pointed to a solid double-digit upside and new all-time highs.
Costco (NASDAQ: COST) is a fantastic buy-and-hold stock for 2026, sustaining industry-leading growth and solid margins despite macroeconomic headwinds and shifting consumer habits. It’s also a great last-minute addition to 2026 portfolios, as it trades near a strong support target in mid-December, which limits the downside risks while catalysts are at hand.
The catalysts include the strengths of Q1 fiscal year 2026 (FY2026) and a robust long-term growth outlook, driven by international expansion and its growing cash position.
Costco’s cash balance at the end of Q1 was over $16.2 billion. Up nearly 15% year-over-year, this balance is more than sufficient to sustain financial health, cash flow will remain positive, and capital returns are in play. Costco neither buys its shares aggressively nor pays a particularly robust dividend. Still, the tendency toward capital hoarding typically results in a special dividend, paid every few years, that is attractive to investors.
The last, paid in December 2023, was worth $15 per share or approximately 1.65% relative to mid-December pricing, paid in one lump sum. At the time, the cash balance was just over $17 billion. The takeaway is that Costco is on track to issue another special at any time.
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Costco Has Strong Quarter, Reduces Store Count Target for 2026
Costco had a strong Q1 with revenue up by 8.2% to $67.31 billion. The top line beat MarketBeat’s reported consensus by 280 basis points, driven by strength in store count and comparable sales. Comparable sales increased by 6.4% across the network, underpinned by a 3.2% increase in ticket average and a 3.1% increase in traffic.
Segmentally, U.S. comps increased by 5.9%, led by a 6.8% increase in Other International and 9% gain in Canada. Digital, central to the company’s growth efforts, grew by 20.5% while fees, an indicator of future strength, increased by 14%.
Margin news is also good. The company’s gross margin widened, and selling, general, and administrative costs improved incrementally, driving accelerated earnings growth. The critical details are that operating income increased by 12.15% and net income and GAAP earnings by 11.3%.
The company does not give guidance, but inferences can be made. The increased store count, comparable momentum, and gains in member count point to continued strength in the current and subsequent quarters.
Costco’s performance and cash flow led to increased cash on the balance sheet, increased inventory to support the new stores, and improved total assets to offset the increases in liabilities. The net result is a 3.8% equity improvement in addition to share repurchases and the dividend.
Share repurchases and regular dividends are not aggressive but reliable, helping to increase ownership and build broad market support.
The 0.6% annualized yield is less than 15% of the earnings outlook, while share buybacks account for an even smaller portion, incrementally lowering the count in FQ1 nonetheless.
Analysts Point to a Rebound in Costco Share Prices
Analysts noted concerns, but only one firm reduced its price target, and that was in line with the broad consensus. The consensus forecasts a 15% upside for COST stock, and most revisions were bullish.
The takeaway is that analysts, on balance, increased their price targets following the release and are leading this market to the $1100 to $1200 range, potentially as high as $1400 over the long term, a 25% stock price increase and a new all-time high at the low-end target.
A move to new highs would be a significant move for this market. Costco’s price action has been range-bound and consolidating for over a year; a move to new highs would break it out of its range and open up some aggressive targets.
The base-case target is worth the range magnitude, or $100, which puts this market at approximately $1185, relative to the critical resistance point. The bull-case scenario includes a sustained uptrend that doubles the base-case target over time.
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