BJ's Wholesale breaks higher after Cowen joins the bull camp
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Cowen started off coverage on BJ's Wholesale Club Holdings (NYSE:BJ) with a Buy rating on Thursday. The firm's bullish thesis includes an outlook for BJ's (BJ) of market share gains through digital differentiation, membership growth across a wealthier & younger demographic, and gross margin expansion fuelled by an assortment transformation.
Analyst Oliver Chen and team said they like BJ's (BJ) wholistic approach to club membership engagement which incorporates digital analytics and a complete basket value proposition with strong appeal to a younger demographic. Cowen model high single-digit long-term EPS growth on low single-digit comparable sales growth and consistent growth from the young base of 238 stores. The firm noted key differences from Costco (COST) in terms of more full basket trips, a higher concentration of stores in the eastern part of the U.S. club concentration, stronger digital penetration, and slightly younger and wealthier members. BJ's (BJ) estimated 9% long-term growth rate is above Costco's estimated growth rate of 8%.
Valuation on BJ's (BJ) is called compelling and Cowen's price target of $80 works out to 20X the FY2 PE backed by a 10-year discounted cash flow of 7% WACC and 3% to 4% terminal growth rate.
Shares of BJ's (BJ) were up 3.85% at 2:45 p.m. on above-average volume. The stock has recovered more than 12% since dipping to around a $60 handle in June. Short interest on BJ's (BJ) is 7.23% of total float, which is a higher percentage than the short bets on Costco (COST), PriceSmart (PSMT), and Target (TGT).

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