The following excerpts explain why Zacks senior wholesale sector analyst Robert Plaza, CFA remains neutral on BJ's Wholesale Club, Inc. (BJ), the third largest warehouse club operator in the USA:
'BJ's reported solid results for the third quarter, beating our EPS estimate by $0.02. The upside was due to lower-than-expected operating expenses as a percentage of sales. The company's efforts to improve its merchandise and increase store traffic continue to drive steady sales growth. We think this positive momentum can continue for the next several months.
'Nevertheless, we remain concerned with BJ's competitive position in the wholesale club market, lack of geographic diversity, and inability to substantially expand its profit margins from current levels. We maintain our Hold rating and slightly increase our target from $34.50 to $35, which is about 18x our fiscal 2008 EPS estimate.
'Despite its lower growth rates, BJ's Wholesale Club's shares trade at a slight premium to the industry mean. We think this valuation reflects the company's improving business prospects as well as the potential for the company being acquired. The stock currently trades at 19.4x our fiscal year 2007 EPS estimate and 17.8x our fiscal year 2008 EPS estimate. The stock should perform in-line with the overall market, in our view. Our target price is $35, or about 18x our fiscal year 2008 EPS estimate.'
Read the full analyst report on BJ.
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