Wells Fargo Expects BJ's Wholesale Stock Recovery To Continue

While concerns around sluggish comps remain, a turnaround opportunity and defensive positioning make BJs Wholesale Club Holdings Inc BJ “an attractive investment idea for 2019,” according to Wells Fargo.

The Analyst

Analyst Edward Kelly upgraded BJ’s Wholesale from Market Perform to Outperform and raised the price target from $24 to $29.

The Thesis

Membership trends are likely to stay positive as BJ’s Wholesale makes further acquisitions and renewal rates rise due to the company’s internal initiatives, Kelly said in a Tuesday note. 

Comps could accelerate given the warehouse club's recent member gains, higher renewal rates, potential food price inflation and other company-specific merchandising initiative, the analyst said. Margins could expand, providing strategic flexibility, and BJ’s Wholesale can use its attractive free cash flow yield to reduce debt, he said. 

The company has so far been plagued by execution issues, Kelly said. Yet its business could improve under the company's new managemen, he said. 

A significant gap exists between BJ’s Wholesale and its peers in almost every key metric, and most of the company’s initiatives are still in their early stages, the analyst said.

Price Action

BJ’s Wholesale Club shares were trading higher by 3.86 percent at $25.55 at the time of publication Tuesday. 

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