Forget earnings, Costco stock investors are about to get a special boost

Issaquah-headquartered Costco Wholesale COST ended in the “red” on May 29 after the big-box retailer’s Q3 per-share profit came in shy of Street estimates.

The multinational’s total revenue surpassed $70 billion in its fiscal third quarter – handily beating the consensus – but a more than 15% increase in EPS to $4.93 missed expectations.

But Bernstein analyst Zhihan Ma recommends buying Costco stock on the pullback as it may soon please investors with a special boost.

The special boost that could ignite a rally in COST shares

On the earnings call, Costco’s chief of finance, Gary Millerchip, acknowledged that the company is “in a position where we continue to generate excess cash”.

Millerchip also agreed that “a special dividend is typically the most effective way to return excess cash without giving up the flexibility to keep investing in growth.”

He stopped short of announcing one, but the hints were loud enough – making analyst Zhihan Ma tell clients that Costco’s announcement of a special dividend wouldn’t be surprising at all.

Bank of America went further. Analyst Christopher Nardone noted that COST's last special dividend was paid in January 2024, and that the company has historically distributed these one-time payouts every two to three years.

This means an announcement could come within the next few quarters, given the “healthy” balance sheet, he added.

Why else is Costco stock worth buying today

Note that COST’s previous special dividend carried a yield of about 2.4%.

At today’s price, a comparable yield would require a payout of around $24 a share – nearly double the $15-per-share disbursement made in January 2024.

Costco shares remain attractive for long-term investors also because the firm’s “digitally-enabled” sales skyrocketed over 21% in the third quarter, while worldwide membership renewal rates held at a remarkable 89.7%.

Total paid memberships at the end of Q3 stood at 82.9 million, indicating COST is not grappling with a slowdown.

Costco has also recently teamed up with Google Commerce, YouTube, and retail media – a notable milestone in its push to capture a growing share of retail media revenue.

Pharmacy, too, emerged as a standout, with management citing “significant” market share gains – partly fueled by surging demand for GLP-1 medications.

All in all, the operational engine here is firing on all cylinders.

How Wall Street recommends playing Costco

Even from a technical perspective, COST shares look attractive to buy on the pullback.

The company’s relative strength index (RSI) sits in the early 30s currently, indicating the stock is now approaching “oversold” conditions – a setup that often triggers a relief rally.

More importantly, Wall Street analysts haven’t thrown in the towel on Costco Wholesale.

The consensus rating on the retail behemoth remains at “moderate buy”, with the mean price target of about $1,094 indicating potential upside of roughly 15% from here.