Morgan Stanley Goes Neutral On BJ's Wholesale

BJs Wholesale Club Holdings Inc (NYSE: BJ), a membership-only warehouse club chain located on the East Coast of the U.S., boasts a solid growth outlook that's mostly priced in to the stock at current levels, according to Morgan Stanley.

The Analyst

Morgan Stanley's Simeon Gutman initiated coverage of BJs' stock with an Equal-weight rating and $28 price target.

The Thesis

The case for being a buyer or seller on BJ's stock at current levels is difficult to make at current levels for multiple reasons, Gutman said in a note. Expectations for the company to generate a 5 to 7 percent EBITDA growth is reasonable and would mark outperformance versus its peers. At the same time, expectations of a long-term 2 percent comp growth rate is less certain given its historic average of negative 1 percent.

On the positive front, the analyst said BJs' management implemented multiple internal efforts around product acquisition costs and a focus on private label products, which could result in a fiscal 2019 earnings per share of $1.61 versus the Street's current estimate of $1.35 per share. Rising competition in the grocery space could result in a moderation in same-store sales growth in the coming year.

BJs stock is trading at 10 times EBITDA, which is roughly in the middle of the valuation range of low-end public grocers at around 6.5 times EBITDA and the high-end grocers at around 15 times EBITDA, Gutman said.

Price Action

Shares of BJs were trading marginally higher at $25.91 early Monday morning.

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