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Your Favorite Wholesale Club Is Steamrolling the Market

·3 min read

You’d be hard-pressed to find many stocks that are widely outperforming the market this year. The truth is that 2022 has been one of the more difficult investment environments in several decades. And with earnings and sales estimates falling drastically for the third quarter, the outlook in the near-term remains murky. One of the ways we can differentiate our approach is by targeting companies that are still witnessing upward earnings revisions, even given a weaker outlook in terms of consumer spending.

In this type of highly inflationary market environment, it pays to identify businesses that are able to pass on increased costs to consumers without any negative effects. These businesses exhibit pricing power and can forward along rising expenses without losing much volume at all. They also tend to fare better during inflationary periods and market downturns, as their underlying business isn’t as affected as most.

Let’s examine a highly-ranked stock that is showing resilience during the market correction this year.

BJ’s Wholesale Club Holdings, Inc. (BJ)

BJ’s Wholesale Club is a domestic operator of warehouse clubs on the east coast. The company offers a variety of goods including perishables like meat and produce, packaged groceries such as breakfast foods and candy, beverages including alcohol, non-edibles like disinfectants and paper products, and general merchandise such as electronics and apparel. Through its nearly 230 warehouse clubs, BJ’s provides significant value to more than 6.5 million members.

BJ’s ability to navigate through the tough retail environment is a testament to its strong customer base and business model. The company has shown a relentless effort to simplify assortments, enhance digital capabilities, and accelerate club openings. BJ’s member count jumped 6% during the second quarter, a sign that its membership base growth remains healthy.

The warehouse operator is part of the Zacks Consumer Services – Miscellaneous industry, which currently ranks in the top 37% out of approximately 250 industry groups. It’s no secret that stocks in leading groups tend to outperform, as roughly half of a stock’s price movement can be attributed to its industry. This group has not only outperformed the market this year, but is relatively undervalued at just an 11.47 forward P/E.

A Zacks Rank #1 (Strong Buy), BJ has surpassed earnings estimates in each of the past four quarters, sporting an average 16.48% beat over that timeframe. The wholesale retailer most recently reported Q2 EPS last month of $1.06/share, a 27.7% surprise over the consensus estimate. BJ’s stock price movement is reflecting the higher-than-anticipated growth, with shares climbing more than 26% in the past year.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Analysts have raised full-year earnings estimates by 9.1% in the past 60 days. The Zacks Consensus Estimate now stands at $3.60/share, translating to growth of 10.77% relative to last year. Sales are projected to climb 14.95% to $19.16 billion. Clearly, the growth trends for BJ look set to continue.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Given the uncertain market dynamic, targeting companies like BJ that display both strong fundamentals and technicals can help investors sidestep the volatility.

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