JPMorgan Double Downgrades BJ's Wholesale (BJ) to Underweight, Removes from Analyst Focus List

January 14, 2022 1:26 AM EST
Get Alerts BJ Hot Sheet
Price: $58.42 -4.02%

Rating Summary:
    14 Buy, 10 Hold, 2 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 17 | Down: 15 | New: 37
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(Updated - January 14, 2022 1:31 AM 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).

The analyst comments "BJ: downgrading to Underweight and removing from AFL after strong 2021 run and re-rating. BJ’s stock rose 64% in 2020 and 79% in 2021, which compares to the 29% for the S&P500, 37% for the JPM Retail Index, and 16% for the XLP in 2021. We had a buy on the stock for nearly all of 2020 and upgraded it again in May 2021 given our expectation for a structural re-rating (i.e., unshackling from its existing 14-18x PE range and re-pricing to "GARPY" staples/discount companies and the multiple has gone from 16x to 20x). We also believed Street EPS estimates were too low and consensus FY22 EPS has been revised 16% higher over the same time period. As we look ahead, we are wary of the low end consumer anniversarying stimulus, the abatement of P-EBT payments (see above), the anniversary of the child tax credit (120-bp monthly boost to retail sales August-December), and accelerating food inflation over the year (also concerns for WMT). This dynamic could lead to SSS shortfalls, particularly as the year progresses. With the multiple at the high end of the range and shorter-term investors that like to comp this to grocers that trade at much lower multiples when SSS slow, BJ’s could see stock headwinds. Lastly, we note that we are required to have a balanced rating distribution and the entirety of this dynamic scores BJ’s at the lower end at today’s price. Our comp estimates remain below the Street for 4Q and all of 2022 and we are lowering our FY22 and FY23 estimates to $3.23 and $3.60 respectively. Our updated Dec 22 price target of $60 is based on 17x our 2023E EPS. Our prior price target assumed BJ's would achieve a market multiple (~20x) though we note the market multiple has de-rated to ~19x while BJ's is still trading at 20x consensus. The stock averaged ~18x FY1 P/E during 2021 and comp trends could turn negative in 2022 while pure-play grocers (e.g., KR, AD. NA and SFM) are trading at much lower multiples. Lastly, BJ is trading at 19x on our updated 2022 numbers and, should the stock overreact to a comp miss/guide down, we believe it could see downside to $55 (17x P/E on our 2022E EPS)."

For an analyst ratings summary and ratings history on BJ's Wholesale click here. For more ratings news on BJ's Wholesale click here.

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

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