BJ’s Wholesale Club has jumped over 50% from its low in January 2008. Like Wal-Mart (WMT) and Costco (COST), the economic slowdown has been BJ’s friend. But Citi thinks the stock has gotten ahead of itself and is primed for a fall, especially as gas sales pinch the gross margin:
We believe that BJ is well-positioned in the current environment given
its price leadership position and improved merchandising strategy. However, we believe the stock is fairly valued at current levels and we view the possibility of a takeout as less likely given current credit market conditions….[Also] as low-margin gas becomes a larger percentage of the overall sales mix, gross margins are increasingly at risk.
Citi downgraded BJ’s Wholesale Club (BJ) from Buy to HOLD, target price cut from $43 to $42.