Costco's Holiday Beat: What Was Priced In and What's Next

Costco's December sales report delivered a clear beat against the whisper number, but the market's muted reaction suggests the good news was already priced in. The core print was strong: net sales for the month hit $29.86 billion, a solid 8.5% increase from the prior year. More importantly, this figure met the company's own fiscal 2026 growth forecast, hitting the baseline expectation.

The real surprise, however, was in the comparable sales. The U.S. figure, which excludes the volatile impacts of fuel and foreign exchange, showed a significant acceleration. It came in at 6.3% for the five weeks ended January 4, a notable jump from November's 5.8%. This was a decisive beat against the 3.5% estimate that had been floating in the market. The digital channel was the standout growth driver, with digitally-enabled sales surging 18.9% for the period. This sustained strength in online, which has been fueled by expanding assortment and faster fulfillment, provided a clear tailwind for the overall sales number.

The expectation gap here is key. The U.S. comp beat was substantial, and the digital surge was powerful. Yet, the stock's initial pop was followed by consolidation, indicating that much of this positive momentum had already been discounted. The market had likely baked in a recovery from the sluggish start to the year, leaving little new upside to drive a sustained rally. The December print confirmed the recovery was real, but it didn't reset expectations high enough to justify a major re-rating.

Expectation Arbitrage: The Sell-the-News Reaction

The market's reaction to Costco's December beat was less about surprise and more about a narrative reset. The stock's nearly 5% surge on Thursday was a powerful reversal of a bearish story that had defined 2025. Shares were down roughly 6% for the full year and had been trading near a 52-week low as investors fretted over elevated valuations, slowing shopping trends, and a sluggish start to the fiscal year. The December print didn't just beat numbers; it provided the catalyst to put that low list behind them.

The move to a one-month high of $915.31 after the print confirms this was a technical and sentiment-driven bounce, not a discovery of new value. It was the market catching up to reality after a period of underperformance. The beat against the whisper number-especially the sharp acceleration in U.S. comps-gave analysts like Jim Cramer a clear reason to believe the tide was turning, and investors acted on that shift in expectation. This is classic "buy the rumor, sell the news" in reverse: the rumor was that Costco was stuck in a rut; the news confirmed it was recovering, which was enough to trigger a short-covering rally.

Yet, the setup remains one of expectation arbitrage. The stock's 5% pop is a reversal, but it doesn't signal a full reset to a new growth trajectory. Shares are still trading at a premium, and the stock remains approximately 18% below analyst consensus target price. This gap suggests the market has priced in a recovery, but not a sustained acceleration. The beat may have reset the baseline, but it hasn't yet priced in the kind of sustained digital growth or comp momentum that would justify a re-rating to those target levels. The expectation gap has narrowed, but it hasn't closed.

Valuation and What's Priced In

The December beat has reset the baseline, but the stock's valuation still reflects a market that is pricing in significant risks. Costco now trades at a forward P/E of 55.5 and a trailing P/E of 48.9. These are premium multiples that demand sustained, high-quality growth. The market is clearly discounting the recovery narrative confirmed by the holiday print, but it is not yet pricing in a full acceleration that would justify a re-rating to the 18% discount to analyst consensus that persists.

This tension is visible in the stock's recent volatility and price action. Despite the nearly 5% surge on Thursday, shares remain trading near their 52-week low of $844.06. The 5.5% daily volatility underscores the uncertainty that still clouds the outlook. The market is weighing the strong comp beat against persistent headwinds like tariffs and potential cuts to SNAP benefits, which could pressure margins and consumer traffic. This is expectation arbitrage in motion: the good news is in, but the risk premium remains high.

The recent upgrade from Mizuho Securities to Outperform with a $1,000 price target signals a shift in analyst sentiment toward the growth story. It suggests that the digital sales surge and comp acceleration are seen as durable, not just a one-time holiday pop. However, the target implies a substantial upside from current levels, which the market is still hesitant to fully embrace. The setup is clear: the stock has caught up to reality, but it has not yet priced in the future. For the rally to extend, the company must continue to beat on the growth trajectory that these elevated multiples now require.

Catalysts and Risks: The Next Expectation Gap

The market has caught up to the reality of Costco's December beat, but the next leg of the story hinges on whether the company can sustain the momentum that has already been priced in. The expectation gap now shifts from "Is the recovery real?" to "How durable is it?" Three forward-looking events will determine if the stock can close the remaining valuation gap or if new risks will widen it.

The most critical watchpoint is the fiscal 2026 guidance update. The December print met the company's own 8% revenue growth forecast, but it didn't reset it higher. The market is now waiting to see if management confirms this baseline or signals a reset. A guidance increase would be a powerful catalyst, validating the acceleration in comps and digital sales as a new trend. A hold, however, would suggest the company sees no reason to raise expectations, potentially capping the stock's upside despite continued strong execution.

The consistency in monthly comps provides a bullish signal, but the core question is whether this is a trend or a holiday spike. The U.S. comparable sales have held steady at 6.3% in December, following 6.4% in November and 6.9% in October. This sustained strength, particularly in the average transaction size which accelerated to 4.2%, points to underlying demand. Yet, the market will scrutinize the next few reports for any sign of a slowdown. The recent acceleration in digital sales, which surged 18.9% in December, is a key indicator of this sustainability. If online growth can maintain its double-digit pace, it will prove the recovery is broad-based and not reliant on a single channel.

Finally, the market will look past the headline numbers to the health of the membership engine and e-commerce. Membership renewal rates, which are a critical driver of stable sales, will be a silent but vital metric. Any sign of strain there would undermine the entire model. Similarly, while the December digital surge is impressive, the growth rate is still below the prior year's 34.4%. The market will watch for signs that management can reignite that engine to its previous blistering pace, as Jim Cramer noted. For now, the setup is clear: the stock has priced in a recovery, but it has not yet priced in a sustained acceleration. The next few data points will decide if the expectation gap closes or opens wider.