BJ’s Wholesale Club (NYSE:BJ) Is A Buy Buy Buy

BJ’s Wholesale Club Is Another Viral Winner For Your Portfolio

I have run across the same bullish story so many times this earnings cycle I'm almost tired of repeating myself. Basically, most businesses are doing better during the quarter than the analysts had predicted, the rebound is stronger than expected, and the outlook for the 2nd half is at least optimistic if not outright positive. Now, there are some businesses that have not done well during the pandemic, don’t get me wrong, but there are oh so many more doing record levels of business. BJ’s Wholesale Club (NYSE:BJ) is only one.

A Transformative Event For BJ’s Wholesale Club

The pandemic was a transformative event for so many businesses and for BJ’s Wholesale Club that is great news. The company has been elevated from a position of successful obscurity to that of a growing household name.

The top-line revenue grew 17.9% over the past year due to stay-at-home and social distancing trends. When you take out the impact of fuel, comps in the core business rose 24.2% with much of that growth seen in the eCommerce channels. Revenue from eCommerce grew more than 300% for the quarter. As with Tractor Supply Company (NASDAQ:TSCO), Target (NYSE:TGT), Home Depot (NYSE:HD), and others, these trends are sticky. Growth may slow over the coming year but the gains are not expected to evaporate.

"Our business has been transformed and strengthened in the last six months by every measure. We are extremely well-positioned to continue to win as we invest in digital capabilities, membership, assortment, marketing and geographic expansion to further accelerate this transformation," said CEO Lee Delaney.

On the bottom-line, EBITDA came in at $216.9 million, that’s up 41% from the previous year and 2000 basis points above the consensus estimate. The GAAP earnings came in at $.76, adjusted at $0.77, and both are well ahead of consensus. To help keep things in perspective, earnings could have been much greater if BJ’s hadn’t spent over $110 million on wage increases and bonuses, a decision I applaud.

At the operating level, income increased to 4.1% of sales vs 3.0% in the prior year and substantially juiced the company’s free-cash-flow. Cash from operations topped $733.7 million with $654 million in FCF during the 1st half of the year. That’s an important statistic for this stock because BJ’s is a share-repurchaser. Repo’ understandably slowed in the 1st quarter but, after the $34.1 million spent in the 2nd quarter, are now track to top $100 million in fiscal 2020.

The Technical Outlook: BJ’s Is Incredibly Undervalued

The analysts are bullish on this stock but not bullish enough, I say. The current consensus rating is a buy but the price targets and valuations don’t reflect the 2nd quarter strength or the company’s true value. Share’s of BJ’s were trading at only 18X this year’s earnings going into the release and now that figure has fallen. Compared to the 40X earnings people are paying for Costco (NASDAQ:COST) and 25X for Walmart (NYSE:WMT) there is a little bit of room for this stock to move higher. Like 25% to 100% higher.

On a technical basis, the stock is in rally mode and showing one of the strongest rebounds I’ve seen this year. In fact, if you look at the chart, it appears as if the pandemic was a turning point for this company that has altered its course forever. Today’s action has the stock up more than 1.5% in early action and trading just below the all-time high. It may be wise to wait for a pullback before buying but, then again, it might not. If the rest of the market sees the same value in this stock that I do, it could easily continue its ballistic run.