BJ's Wholesale Earnings: Strong Top-Line Growth Causes Already-Pricey Shares to Spike

No-moat BJ’s Wholesale Club reported fiscal 2024 fourth-quarter results that exceeded our expectations, though management’s profit guidance for fiscal 2025 was underwhelming. We anticipate time value of money, strong fourth-quarter results, and weaker-than-expected guidance to culminate in a modest increase to our $65 fair value estimate. The market’s reaction was more positive, as the stock popped 12% in March 6 trading. While we commend BJ’s strong recent performance and market share gains, the firm still faces intense competition from mass merchandisers, hard discounters, and other warehouse clubs, which we do not expect to abate. As such, we see no reason to materially alter our long-term outlook for 2.5% comparable sales growth (in line with our growth forecast for the grocery industry) and operating margin around 4%. We think the stock looks overvalued, trading at about 26 times next year’s expected earnings based on the midpoint of management’s guidance.