The Market For BJ’s Wholesale Club Has Peaked
BJ’s Wholesale Club (NYSE: BJ) had a record-setting year in 2021 and the good times are not over. The bad news is that growth is underpinned by rising gas prices, margins are tightening, and COVID-19 tailwinds are no longer blowing. What this means is the outlook for 2022 is very tepid and activity within the sell-side community reflects this. Not only have the analysts begun to sour on the name but the institutions, who hold fully 99% of the stock, have begun to sell. The selling isn’t heavy, not yet, but 2% of the market cap within the first two months of the year is not something to ignore. If this activity picks up it could easily send shares below key support levels and induce a much deeper correction than what we’ve already seen.
The analysts still rate the stock a weak Buy but this is down from a firm Buy last year and accompanied by a weakening trend in the consensus price target as well. The consensus price target of $67.64 still implies 20% of upside for the stock but it has barely budged over the last 90 and 30 day periods. In fact, the last five analysts' notes, two of which are out following the Q4 release, include two downgrades and four price target reductions. In our view, this trend will continue and add downward pressure to the price action.
BJ’s Has Mixed Quarter, Guides Tepid
BJ’s Wholesale had a great quarter but two things are clear in the results. The first is that growth is completely priced into the market, the second is that growth has peaked and guidance is short of consensus. Regardless, the $4.36 billion in net revenue is up 10.4% over last year and business is expected to remain strong. The problems arise with the comparison which has revenue below expectations and growth is driven by inflation. The total comps are +8.8% YOY and 21.8% on a two-year basis but ex-gas sales are up only 0.9% YOY and 16.8% in the two-year stack. Digital sales continue to underpin results as well and are up 19% YOY and 187% on a two-year basis.
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Moving down, there is some good news in the margins. Margin widened on both a GAAP and adjusted basis and more than expected. The $0.80 in adjusted EPS is up $0.10 from last year or about 14.5% and beat the consensus by $0.06 but that’s where the good news ends. The company is guiding for revenue growth in 2022 but at a mid-single-digit rate compared to the 6.97% consensus estimate and earnings are expected to be flat versus up low to mid-single digits. In our view, gasoline sales are going to support revenue in the coming year but the high cost of gas will impact inside sales. There’s also the chance that skyrocketing inflation will curb expansion plans. We’ll see what happens.
BJ’s Doesn’t Pay A Dividend
BJ’s Wholesale Club doesn’t pay a dividend but it does buy back shares. The problem is the existing repurchase allotment is more than half used and no new plans were announced. In that light, companies like Walmart and Costco may offer a more attractive investment opportunity.
Turning to the charts, shares of BJ’s Wholesale Club are trading at the bottom of a range and showing some signs of support but we don’t trust them, not yet. The stock is indicated lower on both the weekly and daily charts with price action moving lower ahead of Monday trading. In our view, support is already eroding and price action will soon move lower. A firm move to new lows would be a bearish trigger and could take the stock all the way down to $50 or even lower.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| BJ's Wholesale Club (BJ) | $92.50 | +7.9% | N/A | 23.36 | Moderate Buy | $90.40 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
