BJ's Wholesale Club and 3M have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – January 30, 2023 – Zacks Equity Research shares BJ's Wholesale Club Holdings, Inc. BJ as the Bull of the Day and 3M Company MMM asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on VanEck Morningstar Wide Moat ETF MOAT, VanEck Morningstar International Moat ETF MOTI and VanEck Morningstar ESG Moat ETF MOTE.
Here is a synopsis of all five stocks.
Bull of the Day:
BJ's Wholesale Club Holdings, Inc. shares have surged over the last year to top warehouse club rival Costco and crush the S&P 500. BJ’s Wholesale’s outlook appears strong and it could be set to extend its outperformance as consumers across the U.S. look to save money where they can.
BJ stock recently broke back above two key moving averages after suffering a pullback from its mid-November peaks. And these are just some of the reasons why BJ's Wholesale is Monday’s Bull of the Day.
Shining in a Key Retail Space
BJ’s Wholesale is one of the leaders in the warehouse retail club space, with most of its locations primarily on the east coast. The retailer is a one-stop shop for consumers, selling everything from perishable products and an assortment of grocery items to TVs and furniture, as well as gasoline and various services.
BJ’s Wholesale is able to offer what it boasts are “25% or more savings on a representative basket of manufacturer-branded groceries compared to traditional supermarket competitors” through its membership fees. The company’s basic Inner Circle membership fee costs $55 a year, while its Perks Rewards, which includes extras such as cash-back offerings, runs $110 per year at the moment. BJ’s Wholesale also offers Business memberships.
BJ’s Wholesale first began its operations in the New England area back in the mid-1980s, with roughly 235 stores across nearly 20 states today. The firm boasts that it has over 6.5 million members. Plus, it is expanding its in-house logistics and warehouse unit as it prepares to better compete against the likes of Amazon, Costco, Walmart and others.
BJ’s Wholesale, like Costco, is able to keep its costs rather low and highly attractive to customers, even during 40-year high inflation, because of its membership fees. The company’s membership fee income climbed by 9% during its Q3 FY22 to $99.5 million.
BJ's Wholesale topped our Q3 earnings estimates in November and more importantly lifted its outlook even as most companies across the entire economy lowered their guidance. BJ’s Wholesale’s fiscal 2022 revenue is projected to climb 16% to $19.37 billion to help lift its adjusted earnings by 16.6% to $3.79 per share, based on Zacks estimates.
The company is then projected to expand its top-line by another 6% in 2023 and post higher adjusted earnings as well. This expected expansion would come on top of BJ's Wholesale’s 8% sales growth in 2021 and 17% in 2020.
BJ's Wholesale’s earnings outlook has climbed steadily higher over the last few years. Plus, the company’s most Accurate Zacks Estimates (which are the newest) come in well above the current consensus. For instance, its Most Accurate Zacks estimates for Q4 FY22 and Q1 FY23 are 18% higher than the consensus at the moment, with full-year fiscal 2023's figure 10% stronger.
BJ's Wholesale has also crushed our bottom-line revisions by 18% in the trailing four quarters. Better still, BJ has topped our EPS estimates every quarter since it went public back in 2018.
BJ shares have climbed nearly 200% since its debut to blow away the S&P 500’s 50% during this stretch and crush Costco’s 140%. The stock is also up 230% in the last three years and 60% during the trailing 24 months vs. the benchmark’s 6% climb and its Zacks Econ sector’s 34% drop.
BJ is down roughly 13% from its November peaks and closed regular trading Friday at $69.70 per share. This gives the stock 15% upside before it runs into its current average Zacks price target. And BJ's Wholesale just recently broke back above both its 50-day and 200-day moving averages.
On the valuation front, BJ's Wholesale trades nearly in line with its all-time median at 18.3X forward earnings, which also has it neck-and-neck with the S&P 500 right now. Plus, it marks stellar value compared to rival fellow warehouse club standout Costco’s 33.6X.
Overall, BJ's Wholesale’s positive bottom-line revisions activity helps it land a Zacks Rank #1 (Strong Buy) right now. And 10 of the 16 brokerage recommendations Zacks has are “Strong Buys” right now, alongside five “Holds.”
BJ's Wholesale proved itself during a brutal stretch for the wider stock market and its outlook appears strong, especially as most Americans look to save money at every turn.
Bear of the Day:
3M Company fell short of our Q4 fiscal 2022 earnings estimates on January 24 and provided a rough outlook for 2023. The industrial conglomerate’s recent setback, which has MMM shares down nearly 45% since May of 2021, is part of a larger downturn over the last five years.
3M is the industrial conglomerate behind Scotch tape, Post-it notes, and tons of other supplies, parts, and equipment that range from automotive and insulation to medical supplies, personal protective equipment, and beyond. 3M posted a strong 2021, with sales up 10%. But that is outsized growth for a company that had been posting closer to 3% sales growth and some down years over the last decade.
3M benefited greatly from the covid spending boom on everything from face masks to cleaning supplies. The company attributed its fourth quarter underperformance “to rapid declines in consumer-facing markets – a dynamic that accelerated in December – along with significant slowing in China due to COVID-related disruptions.”
3M CEO Mike Roman said in prepared Q4 remarks that his firm expects “macroeconomic challenges to persist in 2023.” The company said it is cutting roughly 2,500 global manufacturing jobs in an effort to cut costs and better “align with adjusted production volumes.”
3M’s overall 2022 sales fell 3% YoY to $34.2 billion, some of which was caused by a strong U.S. dollar. Meanwhile, its adjusted earnings fell 6% and its GAAP operating income margin fell from 20.8% to 19.1%.
Looking ahead, Zacks estimates call for 3M’s revenue to slide 7.5% to come in below its 2020 total, with its adjusted EPS projected to slip by 10%.
3M’s FY23 consensus EPS estimate is down 13% over the last few months, with FY24's 11% lower. 3M’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now.
3M stock is now down around 55% in the last five years vs. the S&P 500’s 43% climb and its Zacks Econ sector’s 10% drop. 3M’s Diversified Operations industry is in the bottom 17% of over 250 Zacks industries right now. Worse still, 12 of the 16 brokerage recommendations Zacks has for MMM are “Holds,” alongside three “Strong Sells,” one “Sell,” and no buys.
Some investors might think that 3M is ripe for come bottom-feeding given its dividend yield and low P/E ratio. But Wall Street and the Zacks Rank are staying away from MMM for now.
Here's Why Moat ETFs Are Outperforming the S&P 500
The S&P 500 has lost 9.7% past year (as of Jan 20, 2023) due to red-hot global inflation, Fed rate hikes, hawkish global central banks, Russia-Ukraine war, surging energy prices, zero-COVID policy in China and the resultant occasional lockdowns, global supply chain woes and recession risks. But VanEck Morningstar Wide Moat ETF has retreated 7% past year, outdoing the S&P 500.
So far this year, MOAT is up 4.9% versus 3.5% gains in the S&P 500. Though Wall Street is off to a good start to first-quarter 2023, a volatile ride is expected ahead as fears of further Fed rate hikes and global growth concerns will continue to pull strings of the markets. Wells Fargo’s head of equity strategy Chris Harvey thinks that the S&P 500 could reach 4,200 this year, but not before it records a decline from current levels to around 3,400, as quoted on TipRanks.
With the inflation levels still high, central banks still hawkish, tech lay-offs intensifying and economic indicators coming in mixed, investors can expect volatility to rule 2023. Against this backdrop, investors may be looking for ways to navigate through this volatility. Moat investing is one such option.
How MOAT ETFs Are Beating the S&P 500
The term “economic moat” was popularized by legendary investor Warren Buffett who said that he seeks "economic castles protected by unbreachable moats.” In simple words, a moat is a unique competitive advantage that allows a company to outperform others in the same industry over time.
Wide-moat companies have stronger pricing power, Morningstar’s director of equity research for index strategies Lane said lately, meaning they are better-positioned to pass on rising inflation-related costs directly to consumers. And wide- and narrow-moat stocks have outperformed the broader equity market over the past several years, per Morningstar. Over the past five years, MOAT is up 48.2% versus 35.7% gains in the S&P 500 (as of Jan 20, 2023).
Against this backdrop, below we highlight a few wide-moat ETFs that can be tapped now.
ETFs in Focus
VanEck Morningstar Wide Moat ETF
The underlying Morningstar Wide Moat Focus Index tracks the overall performance of the 20 most attractively priced companies with sustainable competitive advantages. No stock accounts for more than 3.11% of the 49-stock fund.
Information Technology (32.39%) takes the largest weight in the fund, followed by Industrials (18.13%), Health care (11.79%) and Financials (11.50%). The fund charges 46 bps in fees.
VanEck Morningstar International Moat ETF
The underlying Morningstar Global ex-US Moat Focus Index tracks the overall performance of 50 attractively priced companies outside the U.S. with sustainable competitive advantages. The fund holds 70 stocks in the fund.
No stock accounts for more than 2.37% of the fund. Financials (18.87%), Consumer Discretionary (15.14%), Healthcare (14.11%) and Information Technology (12.05%) have a double-digit weight in the fund. China takes the top spot in the fund with about 30% weight while U.K. (16.57%), France (7.84%) and Switzerland (6.07%) round out the top four geographical spots.
VanEck Morningstar ESG Moat ETF
The underlying Morningstar US Sustainability Moat Focus Index is rules-based and intends to offer exposure to attractively priced U.S. companies with long-term competitive advantages that have been screened for ESG risks.
The 62-stock fund is heavy on Information Technology (30.68%), followed by Financials (21.70%), Consumer Staples (13.78%) and Industrials (11.29%). No stock makes up more than 2.89% of the fund.
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3M Company (MMM) : Free Stock Analysis Report
BJ's Wholesale Club Holdings, Inc. (BJ) : Free Stock Analysis Report
VanEck Morningstar Wide Moat ETF (MOAT): ETF Research Reports
VanEck Morningstar International Moat ETF (MOTI): ETF Research Reports
VanEck Morningstar ESG Moat ETF (MOTE): ETF Research Reports
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