JPMorgan double downgrades BJ Wholesale (BJ) to underweight, removes it from analyst focus list

January 14, 2022 1:26 a.m. EST

(Updated – Jan 14, 2022 1:31 a.m. EST)

JPMorgan analyst Christopher Horvers downgraded BJ’s Wholesale (NYSE:BJ) from overweight to underweight with a price target of $60.00 (from $78.00 previously).

The analyst comments “BJ: downgraded to underweight and removed from AFL after strong run and re-rating in 2021. BJ’s stock is up 64% in 2020 and 79% in 2021, which compares to 29% for the S&P500, 37% for the JPM Retail Index, and 16% for the XLP in 2021. We have been buying the stock for most of 2020 and updated it again in May 2021 given our expectation of structural revaluation (i.e. break free from its existing 14-18x range of PE and revaluation of base/discount “GARPY” companies and the multiple moved from 16x to Looking ahead, we are wary of the low-end consumer anniversary relaunch, reduction in P-EBT payments (see above), credit anniversary child tax (monthly increase of 120 basis points in retail sales from August to December), and accelerating food inflation over the year (concerns also p our WMT). This dynamic could lead to SSS shortfalls, especially as the year progresses. With the multiple at the high end of the range and short-term investors who like to offset that for grocers who trade at much lower multiples when the SSS slows, BJ could see some headwinds in stocks. Finally, we note that we are bound to have a balanced rating distribution and the entirety of this momentum gets BJ ratings in the lower end at today’s price. Our offset estimates remain below street for Q4 and full year 2022 and we are lowering our estimates for FY22 and FY23 to $3.23 and $3.60 respectively. Our December 22nd updated price target of $60 is based on 17 times our 2023E EPS. Our prior price target assumed that BJ’s would hit a market multiple (~20x), although we note that the market multiple has been downgraded to ~19x, while BJ’s is still trading at a consensus of 20x. The stock has averaged ~18x FY1 P/E in 2021 and competition trends may turn negative in 2022, while pure grocers (e.g. KR, AD. NA, and SFM) are trading at much higher multiples low. Finally, BJ is trading at 19x on our updated 2022 figures and, if the stock overreacts to a lack of clearing/guiding down, we believe it could see a drop to $55 (17x P/E on our EPS 2022E). “

For an analyst rating summary and rating history on BJ’s Wholesale, click here. For more information on BJ’s Wholesale reviews, click here.

Shares of BJ’s Wholesale closed at $64.88 yesterday.

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