Costco Wholesale Corp. announced robust financial results on December 11, 2025, revealing a significant increase in free cash flow (FCF) and improved FCF margins. Despite this positive news, the company’s stock has experienced a decline, falling by 8.7% over the past year. As of December 26, 2025, Costco shares closed at $873.35, which is down 8.66% from $956.14 a year prior.
The reported figures indicate strong performance. For the fiscal first quarter ending November 23, 2025, Costco’s revenue rose by 8.28%, with a comparable store sales increase of 6.4%. More notably, FCF surged by 58.4% year-on-year, reaching $3.162 billion, compared to $1.996 billion in the same quarter of the previous year. Over the trailing twelve months, Costco’s FCF exceeded $9 billion, significantly higher than the $5 billion reported last year.
Strong Financial Indicators
Costco’s FCF margins also showed a marked improvement, with a Q1 2026 margin of 4.70%, up from 3.21% a year ago. This represents a 46% increase in the company’s ability to generate cash from its operations. The trailing twelve-month FCF margin reached 3.21%, an increase from 2.85% in the previous fiscal year, indicating strong operational leverage and effective management.
Analysts anticipate further growth in sales, projecting revenue of $297.14 billion for the fiscal year ending August 31, 2026, an 8% increase from $275.2 billion in FY 2025. For the subsequent year, sales are expected to rise to $318.18 billion. Utilizing these estimates, analysts forecast $302.65 billion in sales for the next twelve months, representing a 10% increase over FY 2025.
Using the projected sales figure, if Costco’s FCF margin improves to 3.53%, an increase of 10% from the current margin, the company could generate approximately $10.68 billion in FCF for the next twelve months. This figure marks a 36.3% increase over the $7.837 billion reported in FY 2025 and is 18.7% higher than the $9 billion reported for the trailing twelve months.
Valuation Assessment
Costco currently distributes just 25% of its FCF as dividends, resulting in a modest dividend yield of 0.60%. If the company were to distribute 100% of its FCF, the yield could potentially rise to 2.40%. Based on the projected FCF of $10.68 billion, if Costco were to apply this to its dividend policy, the market value could reach $445 billion, an increase of 15% over its current market capitalization of $387 billion.
Alternatively, considering the trailing twelve-month FCF of $9 billion, which constitutes 2.32% of its market cap, the calculated market value could rise to $460 billion. This suggests a target price of over $1,038 per share, reflecting an 18.9% increase from the current price.
In terms of dividends, if Costco increases its dividend payment by 18.6%, from $5.20 to $6.17 per share, and maintains its average dividend yield of 0.6%, the stock price could reach approximately $1,028, a 17.7% increase.
Analyst projections generally align with this assessment. According to data from Yahoo! Finance, 36 analysts have an average price target of $1,031.45, while Barchart’s mean survey suggests a target of $1,048.31, and AnaChart’s survey indicates $947.26 per share. The average price target across these evaluations stands at $1,031.67, suggesting Costco stock may indeed be undervalued.
The overall conclusion indicates that Costco’s current share price presents an attractive opportunity for value investors, especially in light of its strong financial results and positive outlook. Following this analysis, further insights into leveraging investment strategies will be explored in an upcoming article on December 29, 2025.
