Driven by the grocery stockpiling ahead of lockdowns, the membership warehouses offering value for bulk purchasers have set the tone for U.S. retailers during the pandemic. BJ's Wholesale Club Holdings, Inc. (BJ), located mainly in the virus-hit northeastern U.S., has witnessed an exceptional growth in comparable sales last quarter. As the economy reopens, the recovery in high margin businesses will propel the sales momentum, while the lockdown-era habits could outlast the pandemic driving the demand for BJ’s grocery-led product mix.

The pressure on margins due to COVID-related expenses could be outweighed by the cost-saving measures and the expansion in the private label business, which will also encourage new memberships attracted by value. Even though the debt-heavy balance sheet clouds the pace of expansion, the cash flows are at a peak thanks to a sharp rise in sales, raising the hopes for a low-geared company. Yet, BJ’s forward PE adjusted for future growth highlights its undervaluation. Assuming a forward PE of 19.0 - 22.0x to better reflect BJ’s prospects. the consensus EPS estimate suggests a premium compelling enough for a ‘Buy’ in a sector primed for the pandemic-driven growth.

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