Smaller in scale, but not so in profitability, BJ’s Wholesale Club Holdings (NYSE:BJ) stands far superior to its larger competitors even through a debt-heavy balance sheet. While the member acquisition of BJ outpaces Costco Wholesale (NASDAQ:COST), the renewal rate is gradually growing as the company expands into new markets. Giving a hassle-free online shopping experience even for non-members, BJ’s sales composition dominated by perishable goods insulates its brick and mortar business from the ever-increasing e-commerce threat.
Though margins could narrow amid rising gasoline prices and BJ’s reinvestments in expansion, a favorable retail environment makes the modest profit targets achievable. Meanwhile, the fast-declining negative equity and improving credit ratios amid stable cash flows bring hopes of dividends. With a gain more than a third higher than that of COST since the end of June 2018, the forward PE BJ currently trades compared to its trailing PE and competitors seem too steep as the company further deleverages.
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