On Friday, Citi updated its outlook on BJ's Wholesale Club Holdings Inc (NYSE:BJ) stock, increasing the price target to $94 from the previous $79 while maintaining a neutral stance. This adjustment comes after BJ's reported third-quarter adjusted earnings per share (EPS) of $1.18, surpassing the FactSet consensus of $0.93. Comparable store sales were up by 3.8%, which included an approximate 100 basis points benefit from increased stock-up activities, against the consensus of a 1.9% rise.
The company's third-quarter performance was bolstered by a one-time legal benefit that added $0.11 to the EPS, and an estimated $0.13 gain from gas margins, which, according to the firm, brings the underlying result in line with consensus expectations. Despite the positive EPS beat, the core business strength was not as robust as the headline numbers indicated.
Management at BJ's has provided guidance for fourth-quarter EPS in the range of $0.78 to $0.88, which falls below the consensus estimate of $0.97. The anticipated increase in selling, general, and administrative (SG&A) expenses is expected to lead to deleveraging in the upcoming quarter. Additionally, the company's digital sales, which rose by 30% in the third quarter, are contributing to margin pressure due to the higher costs associated with fulfillment.
Citi's analyst noted that while the quarter was positive, the market's strong reaction to the stock was surprising. The club retail model continues to gain market share, suggesting that BJ's should maintain strong performance. However, considering the recent rally in the stock price and the current valuation, which stands at 11.5 times forward fiscal year 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), the firm views the risk/reward profile as balanced.
In other recent news, BJ's Wholesale Club demonstrated a robust performance in the third quarter of 2024. Net sales increased by 3.4%, reaching nearly $5 billion, and membership surged by 40% since fiscal 2018, totaling 7.5 million members. Membership fee income rose by 8.4%, amounting to approximately $115 million. These developments come as Goldman Sachs, Jefferies, and DA Davidson all maintained a Buy rating on BJ's Wholesale, with price targets increased to $102, $110, and $110 respectively.
Analysts attribute the company's success to an uptick in customer visits, strategic initiatives, and a membership fee increase, the first in seven years. This fee hike is seen as a balance between offering value to customers and investing in the expansion of its warehouse count, with plans to expand to over 250 clubs by year-end. Digitally enabled sales also saw a 30% year-over-year increase.
Looking ahead, BJ's Wholesale projects Q4 comparable sales excluding gas to grow between 2.5% and 3%, and full-year adjusted EPS to be between $3.90 and $4.00. These recent developments underscore BJ's Wholesale Club's strong position in the competitive big box retail market and its ongoing success.
InvestingPro Insights
BJ's Wholesale Club Holdings Inc (NYSE:BJ) continues to show strong market performance, as reflected in both its financial metrics and analyst sentiment. According to InvestingPro data, BJ's stock is trading near its 52-week high, with a price at 98.01% of its peak. This aligns with the company's recent positive earnings report and Citi's increased price target.
InvestingPro Tips highlight that 7 analysts have revised their earnings upwards for the upcoming period, suggesting continued optimism about BJ's future performance. This positive outlook is supported by the company's profitability over the last twelve months and analysts' predictions of profitability for the current year.
However, investors should note that BJ is trading at a high P/E ratio of 20.55, which is relatively high compared to its near-term earnings growth. The PEG ratio of 3.47 further indicates that the stock may be overvalued relative to its growth prospects, which aligns with Citi's balanced view on the stock's risk/reward profile.
For those interested in a deeper analysis, InvestingPro offers 12 additional tips for BJ's Wholesale Club, providing a more comprehensive view of the company's financial health and market position.
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