Costco Wholesale's (NASDAQ:COST) March 2025 price plunge allows investors to buy into this industry-leading membership club at a discount ahead of an expected special dividend payment. The company is still a few quarters away from being able to issue another special but is on track, increasing its cash by 25% YTD in Q2 and 35% compared to the prior year.
At this pace, about $3.2 billion annually, it will only be six more quarters until the balance sheet cash equals the $17 billion reported before the last special distribution payment. That was in late 2023 and worth $15 to investors, about 2.25% in yield then, and central to the stock’s parabolic price increase since.
Costco is not only an industry-leading membership club but among retailers generally, growing its store count and comparable store sales in F2025. Among the critical details is its balance sheet health and cash flow, which is substantial. At the end of FQ2 2025, the balance sheet highlights increased cash and assets partially offset by increased liability and an 8.25% increase in shareholder equity.
The company’s leverage is low, with long-term debt less than 0.25X equity and 0.5X cash and the cash balance is growing, so only improvement is expected.
And Costco pays a solid dividend in addition to the expectation for special dividends. The payout in 2025 is a sustainable 18% of its revenue, yielding an annualized 0.5% in March with shares near the 150-day EMA. Although small in yield, Costco’s outlook for annual distribution increases is solid and has the company on track for inclusion in the Dividend Aristocrats by decade’s end.
Analysts Support for Costco Strengthens After Q2 Release and Guidance Update
The analyst support for Costco strengthened after the Q2 release. The activity tracked by MarketBeat includes a single price target reduction and reiterated rating, but even they lead to the high-end range of targets. The remainder of the revisions include price target increases, with the net of activity lifting the consensus incrementally compared to the prior months.
The consensus target forecasts a 10% gain for this market, up 55% in the preceding 12 months, with high-end targets including Loop Capital’s reduced $1035 suggesting another double-digit gain is possible.
Institutional trends align with the analysts in early 2025. The trends include reverting to buying on balance in Q3 of 2024 and ramping their activity higher in Q4 and Q1 of 2025. Q1 2025 activity is at a multi-year high for buyers and a two-year high for sellers, netting $5 billion worth of shares or about 1.15% of the market, with the stock trading near $940.
Costco Falls on Tepid Earnings Results Despite Industry-Leading Performance
Costco’s stock price plunge is due to the bottom-line miss reported for Q2. However, revenue grew by an industry-leading 9% to outpace competitors Walmart (NYSE:WMT) and Target (NYSE:TGT), with earnings growing at a slightly slower 8%. The critical takeaway is that the result was sufficient to increase the cash balance and improve the balance sheet, and similar results are likely in Q3 and Q4. As it is, the analysts are lifting targets and expecting 7% top and 12% bottom-line growth in Q3.
Costco’s stock price fell sharply following the release but has not yet broken the trend. The trend is marked by the 150-day EMA, representing longer-term investors and institutions, which have been providing support and will likely continue to do so. If not, this market could reverse course, but that is unexpected.
Sideways trading within a range until later in the year is the more likely scenario. The top of the range is the all-time high. The bottom is expected to be near $900 and could be confirmed before the start of CQ2 2025. 