Why BJ's can benefit from following Costco's lead and raising membership fees

By Steve Gelsi

JPMorgan lifts rating on BJ's stock to neutral from underperform

BJ's Wholesale Club Holdings Inc. shares drew an upgrade to neutral from underweight from JPMorgan Chase Monday, as an analyst saw prospects for the retailer to gain back market share as consumers seek out value.

Analyst Christopher Horvers also lifted his price target for BJ's shares (BJ) to $78 a share - a $2 increase - after the company reported weaker-than-expected second-quarter results last week.

A potential boost for BJ's could come from increased membership fees, Horvers noted. Larger rival Costco Wholesale Corp. (COST) is raising the fees come Sept. 1 - an additional $5 for its gold star members and $10 for executive members.

The boost in membership fees by Costco opens the door for BJ's to follow suit, he said.

BJ's also appears to be taking a conservative outlook on its earnings prospects going forward, given that grocery prices may be heading higher, Horvers said.

"We expect modest reflation in grocery while the company is benefitting from its efforts to drive share by reinvesting in the business while we are squarely at the point where the channel is seeing a lift from trade down in a hyper-value seeking consumer environment," Horvers said in a research note.

Also read: Here's what to blame for the spike in grocery prices, according to a New York Fed analysis

Another plus for BJ's is its gasoline-retailing business, which continues to gain share. The unit's performance also topped analyst expectations, Horvers said.

BJ's stock was up by 1.1% in premarket trading on Monday. The retailer's share price has risen 24.2% in 2024, ahead of the 18.1% gain by the S&P 500 SPX.

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-26-24 0755ET

Copyright (c) 2024 Dow Jones & Company, Inc.