BJ's Wholesale Stock Undervalued Ahead of Earnings

BJ has chart support in place at its 200-day moving average

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BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) is an American membership-only warehouse club chain that primarily operates on the East Coast of the United States. Think of it as a sector peer to Costco (COST) or Sam's Club, which is owned by Walmart (WMT). 

BJ’s will release its fourth-quarter earnings results prior to the market opening on Thursday, March 4. Wall Street anticipates that the company will report an earnings per share (EPS) of $0.67 in its upcoming earnings report.

Over the past four quarters reported, BJ's Wholesale has managed to beat earnings expectations on three occasions. For the fourth quarter of 2019, the company met analyst estimates and reported an EPS of $0.40. For the first quarter of 2020, BJ’s Wholesale stock increased its EPS to $0.69 and beat expectations by a significant margin of $0.32. For the following quarter, BJ demonstrated increase in earnings, boosting its EPS to $0.77 and beating expectations by a margin of $0.17. In its most recent quarterly report, BJ’s Wholesale reported an EPS of $0.92 and beat expectations by a margin of $0.28.

The retailer has a history of positive post-earnings reactions on the charts. Of the last eight quarterly reports, five have resulted in moves higher the day after, including a 21.7% pop in May and a 3.6% gain last November. This time around, the options market is pricing in a larger-than-usual post-earnings move of 10.2%.

BJ scored a record high of $50.18 on Jan. 27. And while the shares have pulled back since then, their 200-day moving average has contained the damage, a trendline that caught a similar dip in December and January.

BJ Stock Chart

From a fundamental perspective, BJ’s Wholesale stock is seemingly undervalued. BJ's Wholesale stock trades at price-earnings ratio of 15.03 and has a forward price-earning ratio of 14.88. BJ has also seen a decent increase in sales and profits in recent years. This past year BJ grew its revenues by more than $1.7 billion, bringing its total up to $15 billion. Prior to that, the company had only grown its top line by $450 million in the span of two years.

The most impressive thing about BJ’s Wholesale has been its bottom-line growth. Over the past 12 months, the wholesaler has increased its net income by an outstanding 96%, bringing its total to $366.9 million. In addition, BJ has increased its net income by more than $300 million since 2018. Its best growth year in terms of net income was fiscal 2019, where it grew profits by more than 150%. Overall, BJ’s Wholesale stock could be a stable long-term investment if the company continues to focus on growing its bottom line.

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