Costco Wholesale (COST) is well-positioned to continue gaining market share, supported by its "unique" business model, merchandising strength and investments in digital capabilities, RBC Capital Markets said in a note Monday.

The brokerage said it expects "modest" margin expansion and high-single-digit to low-double-digit annual earnings-per-share growth over the medium term, driven by improving e-commerce economics and growing contribution from retail media, as tariff refunds potentially fund price reinvestment.

RBC cited Costco's market share gains, "high income" customer base, membership-driven earnings, expansion opportunities, improving digital business and the potential for a special dividend over the next one to two years as key strengths.

However, Costco's premium valuation, at about 37 times its fiscal 2028 earnings estimate and roughly 1.9 times the S&P 500 multiple, already reflects most of the company's positive fundamentals, limiting the potential for significant upside in the shares, according to the note.

RBC Capital Markets initiated coverage of Costco with a sector perform rating and $1,000 price target.

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