On Friday, Evercore ISI updated its outlook on BJ's Wholesale (NYSE:BJ), raising the price target to $86.00 from the previous $80.00. The firm maintained an In Line rating for the stock. The decision follows BJ's Wholesale's efforts to enhance the value of its membership through improved merchandising, expansion of multichannel offerings, club growth, and added services, despite facing cyclical economic challenges.
The company has seen a 3% increase in traffic in the first quarter. This growth is attributed to several positive factors, including over 3% comparable traffic, a year-over-year increase of 8.6% in merchandise for resale (MFI), and less selling, general, and administrative (SG&A) expenses than anticipated. These developments were highlighted in BJ's financial results for the first quarter.
Evercore ISI has also adjusted its calendar year 2024 earnings per share (EPS) estimate for BJ's Wholesale, increasing it by $0.10 or 2.5% to $4.00. The revision is based on the expectation that improvements in the firm's Retail Sales Leading Indicator (RSLI) and the potential stabilization of food prices, as indicated by a rise in the Food Producer Price Index (PPI), will lead to better second-half comparable sales for the company.
The analyst outlined risks such as pressure on average ticket size, heightened competition, and a 50 basis point compression in merchandise margins, which is largely attributed to the new credit card program.
The firm's analysis suggests that while some investors believe BJ's Wholesale could justify a low 20s price-to-earnings (P/E) multiple in calendar year 2025, in line with its larger peers Costco (NASDAQ:COST) and Sam's Club, others are concerned about BJ's lagging merchandise comparable sales growth, potential constraints on comparable sales from volatile general merchandise, and increasing promotional activities and competition.
Evercore ISI's revised price target of $86 reflects a market multiple based on the firm's 2025 earnings estimate, positioning their outlook between the more bullish and bearish perspectives on BJ's Wholesale's future performance.
InvestingPro Insights
According to the latest data from InvestingPro, BJ's Wholesale (NYSE:BJ) is demonstrating a robust performance with a market capitalization of $11.09 billion and a positive revenue growth of 3.38% over the last twelve months as of Q4 2024. The company's P/E ratio stands at 19.31, indicating a high valuation relative to near-term earnings growth. Despite a strong return over the last three months, with a 16.15% price total return, BJ's Wholesale is trading near its 52-week high, at 97.69% of the peak price. This could suggest that the stock is currently priced at a premium.
InvestingPro Tips highlight that BJ's Wholesale is trading at a high Price/Book multiple of 7.59, which might be a point of caution for value-oriented investors. However, analysts are optimistic about the company's profitability, predicting that BJ's Wholesale will be profitable this year and noting that it has been profitable over the last twelve months. Additionally, the company does not pay a dividend to shareholders, which could influence investors who prioritize income generation.
For those seeking further insights and analysis, InvestingPro offers additional tips on BJ's Wholesale, which can be found at https://www.investing.com/pro/BJ. There are 10 more InvestingPro Tips available, providing a comprehensive understanding of the company's financial health and market position. Readers interested in a deeper dive into these metrics can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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