Costco, BJ’s or Walmart: Which Stock Has the Best Price?

The number of newly reported domestic coronavirus cases has slowed dramatically since mid-January. One would think that shoppers’ stockpiling habits would have done the same, but that hasn’t been the case. 

At Costco, U.S. comparable sales for February were up 17% year-over-year; excluding the impact of surging gas prices, they were up 13%. The recently reported data is a sharp reminder that consumers are still buying groceries and household staples in bulk some 24 months after the pandemic began. 

According to IBIS World, U.S. warehouse clubs and supercenters are projected to generate $554 billion in revenue this year, building off of a stellar 2021. Increasingly popular online storefronts and convenient pick-up and delivery options are expected to drive higher spending for the third straight year in spite of an improving pandemic landscape.

At this time of high geopolitical uncertainty, bunkering down in a warehouse retail stock could help buffer market volatility and portfolio performance. So where is the best place for investors to shop?

It’s debatable whether Costco, Sam’s Club, or BJ’s has the best selection and prices. But when it comes to valuation, it’s clear which one should be brought to the cash register. 

What is Costco’s Valuation? 

Costco Wholesale Corp. (NASDAQ: COST) is the industry leader accounting for approximately 40% of all U.S. warehouse and supercenter store sales. It has the most stores (828) and the most members to go along with the most sales. But is it the most attractively valued stock?

Bargains may be easy to find at Costco, but its stock is not in the bargain aisle. It is trading at 45x trailing earnings, which is well above both its five-year average of 34x and the consumer staples sector average of 24x. 

It could be argued that a premium multiple is warranted given the company’s financial strength and market leadership. After all, Costco is a pillar of stable earnings growth due to its perennially strong membership renewal rates and new store openings. The balance sheet is excellent and the dividend is paid in bulk. However, after a 51% return last year, the market seems to be taking inventory of the new lofty valuation. 

What is Walmart’s Valuation?

Walmart, Inc. (NYSE: WMT) owns Sam’s Club in addition to its more traditional retail stores which account for around 70% of company sales. This makes it somewhat of an apples to oranges comparison to Costco and BJ’s but not much of a stretch given Walmart’s similar value proposition. Sam’s Club represents about 13% of total revenue.

The thing to like about Walmart is its increasing influence in the food business. As CEO Doug McMillon noted on the fourth quarter earnings call, Walmart is gaining share in the grocery and consumables market. Despite rampant inflation for most food items, the company is finding success working with suppliers to simultaneously keep prices down and margins up. Last quarter’s margin expansion to 23.8% was no small feat in the grocery industry and is reason to like the stock.

Walmart shares are trading at 30x trailing earnings, which is slightly below their five-year historical average of 31x. With market share and margins expanding, the P/E multiple should soon do the same. 

The stock has been range-bound for the better part of the last 18 months. This consolidation period should soon be winding down before the next leg up. Walmart’s recently flat returns should be viewed as the calm before the storm and more reason to choose the stock over Costco. 

What is BJ’s Wholesale Club’s Valuation?

BJ’s Wholesale Club Holdings, Inc. (NYSE: BJ) is a distant third in the warehouse retail space. Its sales are historically less than 10% of Costco’s sales. Yet it is still a formidable player that comes with a reasonable price tag.

At 21x trailing earnings, BJ’s valuation is less than half that of Costco and roughly on par with Walmart. As far as warehouse retail pure plays go, BJ’s is the best of the bunch. It has had a nice run since joining the NYSE in June 2018 but appears to have much more where that came from. 

The company’s relatively small stature may be its biggest asset. With 226 warehouse locations across 17 eastern states, BJ’s still has a lot of opportunity to expand. It plans to open 11 new clubs in fiscal 2022, which would stretch its footprint by 5%. By comparison, the more established Costco plans to expand its store count by 4%. Looking beyond this year, BJ’s will have ample opportunity to expand westward while Costco will lean more on international growth. 

BJ’s also has an up and coming e-commerce channel that is reaping the rewards of technological investments. A revamped portfolio of websites and apps that offer same-day delivery and curbside pickup has made BJ’s more of an omni-channel force. 

So, while it may feel comfortable going with the gorilla that is Costco, at this juncture BJ’s nimbleness, better growth prospects, and valuation, make it the stock for investors to put in the checkout cart.