Buy Costco stock as shares are poised to rally 12% after the company raises membership fees for the first time since 2017

• Costco stock has 12% upside after raising its annual membership fees for the first time since 2017, according to Bank of America.
• Costco had delayed the membership fee hike by two years due to inflation and recession concerns.
• Costco stock has been on a tear, rising 29% year-to-date, far outpacing the S&P 500's 18% rise.

Costco stock is a buy after the company hiked its annual membership fees for the first time since 2017, according to Bank of America.

The bank said in a Thursday note that Costco's first membership hike in seven years will give investors greater earnings visibility into 2026.

"We reiterate our Buy and expect COST to gain share in the current environment as consumers continue to adjust to higher prices, making COST's impressive value proposition and price positioning even more attractive," Bank of America said.

The bank increased its price target to $962 per share from $874, representing potential upside of 12% from current levels.

Costco stock rose as much as 3% to a high of $914 per share in Thursday's pre-market trading, marking a continuation of its record rally this year. But the stock has since erased those gains and dropped about 3% as Thursday's regular trading kicked off.

Costco stock is up 29% year-to-date, far outpacing the S&P 500's surge of 18% over the same time period.

Costco's annual membership fee will jump $5 to $65 for its Gold Star and Business memberships, while its Executive membership fee will increase by $10 to $130. The fee increase will go into effect on September 1.

Costco's Executive membership grants users a 2% cash back reward on what members spend annually in the store. As part of the new fee increase, the cash-back reward maximum limit has been increased to $1,250 from $1,000.

Historically, Costco has increased its membership fee about every five years, but the surge in inflation, fears of a recession, and recent management changes delayed the fee hike to seven years, Costco management told Goldman Sachs in early June.

"In our view, the hesitation/delay in increasing the fee was likely also due to success the company has seen in organically increasing membership fee income over the last several quarters at around a 7% rate (driven by new members, a high renewal rate and an increased penetration of higher tiered members," Goldman Sachs said in a note on Wednesday.

Goldman estimates that Costco's fee increase will add about $400 million to membership fee income over the next two years.

On top of the fee increase, Costco also announced June sales data, which saw same-store-sales jump 6.9% on a year-over-year basis to $24.48 billion.

The retailer's same-store-sales growth in June of 6.9% was ahead of consensus estimates at 6.6%,and represented an acceleration from Costco's May sales growth of 6.5%, according to data from Goldman.