The warehouse club BJs Wholesale Club Holdings Inc (NYSE: BJ) reported a second-quarter EPS beat Thursday, but sales fell short of expectations by about 1%. Here's how the Street reacted.

The Analysts

Wells Fargo analyst Edward Kelly maintained an Outperform rating on BJs Wholesale with an unchanged $32 price target.

UBS analyst Mark Carden maintained at Buy, price target lifted from $28 to $30.

Morgan Stanley analyst Simeon Gutman maintained at Equal-weight, price target lifted from $28 to $29.

Wells Fargo: Still Room To Run

BJs faced some "drama" heading into Thursday's report, but the "solid" results should restore faith in the bullish narrative, Kelly said in a Thursday note.

EPS of 39 cents was better than expected, and comps of 1.6% were better than feared and included a 50-basis point impact from weather, the analyst said. Gross margins moved higher by another 30 basis points, which was consistent with management's objective, he said.

Cost control improved after a disappointing performance in the first quarter, which contributed to an adjusted EBITDA beat of $153 million versus the consensus estimate of $146 million, Kelly said. If current momentum is sustained, the company still has "plenty of room to run," he said.

Wells Fargo's $32 price target is based on 21.5 times a 2019 EPS estimate of $1.50, and there is "no reason" why the stock shouldn't at least trade at 19 to 20 times earnings, which implies a stock price of $28.50 to $30, Kelly said.

Related Link: BJ's Wholesale Club Trades Higher On Q2 Earnings

UBS: Trust In Management

BJs' comps were impacted by rainy weather conditions in May, but the company's commentary suggests comps through June and July came in north of 2%, Carden said in a Friday note.

View more earnings on BJ

The 30 basis points of core gross margin expansion against an 80-basis point compare suggests the company has a certain degree of flexibility on procurement costs, the analyst said.

Perhaps more important, BJs believes it can find ways of securing additional savings throughout the rest of the year, he said.

BJs also stands to benefit from a potential improvement in renewal rates from stronger merchandising and improvements from the co-branded credit card, Carden said.

Investors may want to take advantage of the "compelling opportunity," as shares of BJs trade at just 17 times on a NTM P/E basis, according to UBS.

Morgan Stanley: Solid Report, But Valuation Concerns

BJs reported a solid second quarter, as underlying comps look to have stabilized and a path to 2% in the back half of the year is reasonable, Gutman said in a Thursday note.

Yet the stock trades at a balanced risk-reward profile near the research firm's price target, the analyst said.

Gutman said he would turn more positive on the stock for two reasons:

• An acceleration in grocery comps given an opportunity in perishables.

• Better visibility into member growth trends. Some evidence of this was apparent in the form of higher-tier membership penetration expanding from 21% two years ago to 27% in the second quarter, Gutman said.

Price Action

Shares of BJs were trading lower by 4.24% at $25.30 at the time of publication Friday.

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Public domain photo via Wikimedia.

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