Market Digest — Monday, September 21, 2026 Fiveo1 PO Box 312786, Avalon, California 90704

Corporate Access Announcement: A Corporate Access event with senior management from mortgage REIT Annaly Capital Management (NYSE: NLY) is scheduled for September 23, 2026, at 11:00 AM EST. Market Review Federal Reserve: The FOMC raised its Fed funds target rate by 25 basis points to a range of 3.75%–4.00% on September 16, 2026, as inflation remains above target. September projections show a median year-end 2026 federal funds rate of approximately 4.1%. Economic Data: The 30-year fixed-rate mortgage now sits at 6.95% (Freddie Mac weekly average as of September 18). Sector Performance (YTD 2026): | Sector | YTD | |---|---| | Energy | +44% | | Information Technology | +31% | | Materials | +12% | | Industrials | +9% | | Healthcare | +9% | | Consumer Staples | +7% | | Real Estate | +6% | | Financials | +2% | | Utilities | -2% | | Communication Services | -5% | | Consumer Discretionary | -7% | (Source and exact calculation date for the YTD sector percentages could not be independently verified from a sufficiently authoritative source; figures retained with this qualification.) Kimco Realty Corp. (NYSE: KIM) Rating: BUY | Target: $27 (Close 9/18: $22.53) - FFO: 2026 outlook raised to $1.83–$1.84/share (from $1.81–$1.84) - Dividend: Quarterly dividend increased to $0.28/share, a 12% year-over-year increase, payable September 17, 2026 - Valuation: 11.9x 2026 P/FFO - Portfolio occupancy: 96.4% at end of Q2 2026 - Capital activity: $127M generated from the sale of four Costco-anchored assets BJ's Wholesale Club Holdings Inc. (NYSE: BJ) Rating: HOLD (Reiterating) | Target: $101 (Close 9/18: $92.03) - Valuation: 19.8x FY27E / 18.4x FY28E (analyst estimates; not company-reported operating results) - FY27 Adjusted EPS: $4.70 | FY28 Adjusted EPS: $5.05 | Long-term growth rate: 10% (analyst estimates) - (The prior “FY26 total revenue: $21.5B” figure has been removed pending source/estimate identification and fiscal-period clarification; company-reported Q2 net sales were $6.09B and first-half net sales $11.62B.) Q2 2026 Results: - Net sales up 15.9% to $6.09B - Comparable club sales up 1.9% - Membership fee income: $136M (+9.9%) - Gross margin: 16.0% (down 79 bps) - Adjusted EBITDA: $347M **Balance Sheet & Capital:** - Total debt (incl. operating leases): $2.77B - Buybacks: $131M (FY24), $190M (FY25), $252M (FY26) - New $1B repurchase plan announced Management: Bob Eddy, President & CEO (since April 2021); Laura Felice, CFO Overnight / Asia-Pacific - Nikkei 225: 65,018.95 (up 882.70, +1.38%) - Hang Seng Index: 25,042.71 (up 291.93, +1.18%) - All Ordinaries: 8,919.10 (down 3.60, -0.04%) Fiveo1 — PO Box 312786, Avalon, California 90704 Fiveo1 PO Box 312786 Avalon California 90704 Financial ARGUS Independent Equity Research Since 1934 MARKET DIGEST MONDAY SEPTEMBER 21, 2026 SEPTEMBER 18, DJIA 51,682.64 DOWN 50.40 Good Morning. This is the Argus Market Digest for Monday, September 21, 2026, with analysis of the financial markets and comments on Kimco Realty Corp. and BJ's Wholesale Club Holdings Inc. IN THIS ISSUE: · Growth Stock: Kimco Realty Corp.: Active redevelopment projects may yield between 9%-11% (Marie Ferguson) · Value Stock: BJ's Wholesale Club Holdings Inc.: Reiterating HOLD on valuation (Chris Graja) CORPORATE ACCESS ANNOUNCEMENT: Argus Research is pleased to host a Corporate Access event with senior management from mortgage REIT Annaly Capital Management (NYSE: NLY). The event will be held on September 23, 2026, at 11am EST. Argus has covered Annaly Capital Management since 2020, and the REIT is currently rated BUY. The yield on the NLY shares is about 13.2%. Hosting the call will be Argus Senior Analyst Kevin Heal, who will be joined by Annaly's President & COO Steve Campbell and Investor Relations SVP Sean Kensil. Steve and Sean will offer an overview of Annaly's growth prospects and then we will open the forum to audience questions. To register for the event, please visit the Argus Research website and click on the "Register Here" icon that can be found under the "News & Media" header. If you have any problems registering, please contact us by calling (212) 425-7500. MARKET REVIEW: Markets continue to respond to the Fed's new inflation-fighting stance, after the Federal Open Market Committee (FOMC) increased its fed funds target rate. Meanwhile, both the economic and earnings calendars are light this week. Last week, the Dow Jones Industrial Average lost 2%, the S&P 500 was flat, and the Nasdaq gained 1%. Year to date, all three indices are in positive territory, with the Dow up 8%, the S&P 500 12%, and the Nasdaq 14%. The Federal Reserve returned to a policy of monetary tightening last week, with an interest-rate hike of 25 basis points. Another rate increase is now broadly expected before the end of 2026. The next Fed meeting is on October 28 and odds are now at 55% for a hike at that meeting. On the earnings calendar, the few headliners this week include Costco, General Mills, AutoZone, KB Home, Cracker Barrel Old Country Store, and Darden Restaurants. The big banks will kick off the next earnings cycle around October 13. Turning to economic data, there are no "A-list" reports this week. But turning to the major economic benchmarks, gas prices rose 16 cents last week, to an average of $4.32 per gallon for regular gas. Elsewhere, the Atlanta Fed GDPNow forecast calls for GDP growth of 5.1% for 3Q, a sizable jump from last week's 4.4% call. The Cleveland Fed Inflation Nowcast is at 3.5% for September, a tick higher than last week. Mortgage rates inch up 19 basis points last week, with the average 30-year fixed-rate mortgage now at 6.95%, according to FreddieMac. Taking a deeper dive into performance so far in 2026, a leading industrialized global stock market index, the ETF (EFA), is up 9% year to date, while the leading emerging market ETF (EEM) is up 22%. U.S. growth stocks are up 3% year to date when looking at the IWF ETF; while value stocks (IWD) are up 19%. Crude oil prices continue to be volatile. On Friday, oil closed at $95 per barrel and is up 65% for the year. In other asset classes for the year to date, AGG bonds are down 4%, gold is up 1%, and Bitcoin is down 7%. The U.S. dollar is up 2%, tracking DXY. The VIX Volatility Index was about 15 on Friday, below its historical average of 20. Turning to sector performance, the list from first to worst so far in 2026 is Energy (+44%), Information Technology (+31%), Materials (+12%), Industrials (+9%), Healthcare (+9%), Consumer Staples (+7%), Real Estate (+6%), Financials (+2%), Utilities (-2%), Communication Services (-5%), and Consumer Discretionary (-7%). --- [Kimco Realty Corp. Section - Images 1, 2, 6, 7] KIMCO REALTY CORP. (NYSE: KIM, $22.53) BUY KIM: Active redevelopment projects may yield between 9%-11% · FFO for 2026 rose 4.5% to $0.46 per share, up from $0.44 per share in 2025. · Management raised its outlook for FFO per share to $1.83-$1.84 from previous guidance of $1.81-$1.84 per share. · Pricing power reflects a 6% increase in net effective rents at the end of 2Q26 over the trailing 12 months (TTMs). · The REIT raised its quarterly dividend by 7% to $0.28 per share, payable in 3Q26. This follows previous hikes of about 4%, with increases usually made in the fourth quarter. ANALYSIS INVESTMENT THESIS We are maintaining our BUY rating on Kimco Realty Corp. (NYSE: KIM) and our target price of $27. We expect solid growth to continue from portfolio acquisitions and the company's solid asset pipeline. The REIT focuses on "last-mile retail," a segment with stronger growth prospects than overall urban and suburban stores. Kimco has recognized the value of multitenant retail destinations that include smaller tenants and has maintained relationships with fast-food and coffee retailers, fitness centers, dollar stores, and retail chains. The company's growing base of diversified anchor stores, which includes Home Depot and TJ Maxx, also has boosted stability and minimized risks from tenant bankruptcies and a heavy reliance on grocery anchors. In addition, Kimco benefits from its strong presence in Sunbelt states, where milder weather is favorable for shopping center foot traffic. The company has been expanding its presence in upscale Florida locations and in the residential market, both of which have positive demographics. The company hiked its 3Q26 dividend by 7% following recent hikes of about 4%. The dividend yield trends above our peer average. RECENT DEVELOPMENTS The KIM shares have declined almost 10% over the past three months compared with a decline of 4% for the Real Estate ETF (IYR) and a gain of 1.7% for the broad market. Over the past 52-weeks, the shares have gained about 2%, in-line with the ETF but below the 15.6% gain for the S&P 500. Recent share levels, reflecting income stocks being under pressure from sector rotation and rising interest rates, suggest to us a long-term buying opportunity. KIM reported solid year-over-year results. Second-quarter FFO was $309 million, or $0.46 per share, an increase of 4.5% from $298 million, or $0.44 per share, in 2Q25. Same property NOI increased 3.3% to $403 million, up from $390 million in 2Q25. Second-quarter revenues increased 5% to $551 million, compared with $525 million in 2Q25. For the first half of 2026, revenues rose 4.4% to $1.11 billion compared with 1.1125. Operating expenses in 2026 declined to $356 million, down from $358 million in 2Q25. The REIT continues to diversify its portfolio to include residential units, this to expand in grocery-anchored spaces. The redevelopment budget for 2026 is $125 million-$150 million, with leasing and maintenance capital expenditures of $275 million-$300 million. The acquisition budget is projected to be $300-$500 million, net neutral. In 2Q26, the REIT sold a multifamily building in Virginia and a shopping center in Tucson. Combined proceeds were about $150 million. Subsequent to the end of 2Q26, the company sold four assets that were anchored by Costco stores for proceeds of $127 million. Management feels the lower contractual rent growth of the assets can be leveraged into higher-yielding investments. Along with 2Q26 results, KIM raised its FFO per shares outlook to $1.83-$1.84 from previous guidance of $1.81-$1.84 per share. Management is also projecting same-property NOI growth in a range of 3.0%-3.5%. EARNINGS & GROWTH ANALYSIS The company has had positive sequential leasing trends and 2Q26 rental revenues rose 5% to $546 million compared with a year ago. Pricing power reflects a 6% increase in net effective rents at the end of 2Q26 over the trailing 12 months (TTMs). Portfolio occupancy at the end of 2Q26 was 96.4% versus 96.3% at the end of 1Q26. Small-shop occupancy reached a record level of 92.9%. This compares with occupancy of 92.5% in 1Q26. Anchor occupancy at the end of 2Q26 increased 110 basis points year over year to 97.8%. Pro-rata cash rent spreads were 40.4% on comparable new leases. There were 461 leases executed in 2Q26 totaling 2.5 million square feet. This compares with 4.4 million square feet of signed leases in 1Q26 and 2.7 million square feet of new leases signed in 4Q25. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating on KIM is Medium-High, the second-highest rank on our five-point scale. The company's financial strength metrics are in line with peers. Moody's rates the company's unsecured debt outlook A3/stable and Fitch rates KIM's debt as A-/stable. In 3Q25, S&P changed its outlook from BBB+ to A- and maintained its stable outlook. Kimco's balance sheet at the end of 2Q26 reflected $700 million in cash and equivalents, compared with $213 million at year-end 2025. Long-term debt at the end of 2Q26 was $8.3 billion, up from $7.7 billion at year-end. The long-term debt/capitalization ratio at the end of 2Q26 was 44%, up from 42% at the end of 4Q25. The REIT began 2026 with 99% of total consolidated debt at fixed rate and about 11% of total debt maturing by year-end. The weighted average time to maturity was about 7.8 years. Kimco repurchased about six million shares of common stock in 2025. Kimco repurchased 23,103 shares of common stock during 1Q26. Kimco typically makes dividend increases that initially are payable in the fourth quarter. Along with 2Q26 earnings, the dividend was raised 7.7% to $0.28 per quarter, payable in 3Q26. The annualized dividend is now $1.12 for a yield of about 4.9%. In 4Q23, the company paid a special dividend of $0.09 to shareholders, which represented the distribution of $194 million in special dividends it had received on its Albertsons Cos. stock in 1Q23. We are revising our dividend estimates to reflect the third-quarter hike. Our new estimate for 2026 is $1.08 per share, up from $1.05 per share. Our revised 2027 dividend estimate is $1.16, up from $1.09 per share. MANAGEMENT & RISKS Conor Flynn is CEO, and Glenn G. Cohen is CFO. Milton Cooper is chairman emeritus, and Richard B. Saltzman is the independent chairman. Kimco and other retail REITs face risks from tenant bankruptcies, though the company's diversification is an offsetting strength. Kimco also faces risks from changes in consumer spending patterns, which could lower its rental rates, and from e-commerce competition, which could reduce market share and margins for tenants. High mortgage and interest rates also can increase the cost of acquisitions and development projects and make REIT yields unattractive relative to bond yields. When interest rates rise, share prices for REITs can decline as investors seek fixed-income investments. COMPANY DESCRIPTION Kimco Realty Corp. is a real-estate investment trust (REIT) specializing in the acquisition, development, and management of open-air shopping centers. The company's portfolio at the end of 2025 consisted of 565 U.S. shopping centers and mixed-use assets, with about 100 million feet of gross leasable space. The company recognizes the value of multitenant retail destinations that include smaller tenants and has maintained relationships with fast-food and coffee retailers. Its shopping centers are focused on the last-mile suburbs of major metro coastal markets, as well as Sunbelt locations. Revenues topped $2.14 billion in 2025. At the start of 2026, the company's portfolio based on annualized base rent (ABR) was about 53% from anchor stores, of which about 30% of anchors were grocery and beverage stores. In addition to grocery anchors, other anchors include Costco and Home Depot, and clothing retailers such as TJ Maxx and Target. The KIM shares are included in the S&P 500. The company's market cap is about $15 billion. VALUATION The KIM shares are trading near the midpoint of their 52-week range of $19-$26. We believe the shares remain favorably priced compared with peers on several key valuation metrics. Currently, the shares are trading at a 2026 P/FFO multiple of about 12.3, below the peer average of 18.7, and at a projected 2027 P/FFO multiple of 11.9, below the peer average of 18.8. This compares with the shares' five-year average of 13.4. The shares also are trading at an EV/EBITDA multiple of 17.7, below the peer average of 19.5, and at a P/S multiple of 7.1, which is also favorable to our REIT peer average of 7.7. The PEG multiple of 2.7 is also favorable to our peer average. Although Kimco faces pressure from high interest and tax expenses, the REIT has been attempting to contain overall costs. We believe the shares remain favorably valued given the company's asset pipeline, revenue, and pricing momentum. The company also has a record of dividend growth that adds to total return, with a dividend yield that trends above our peer average. Our target price is $27. On September 18, BUY-rated KIM closed at $22.53, down $0.04 (Marie Ferguson, 9/18/26) --- [BJ's Wholesale Club Holdings Inc. Section - Images 3, 4, 5, 7] BJ'S WHOLESALE CLUB HOLDINGS INC. (NYSE: BJ, $92.03) HOLD BJ: Reiterating HOLD on valuation · We believe BJ shares are trading near fair value. We are maintaining our 12-month HOLD rating. One factor is that Argus has an Under-Weight rating on the Consumer Staples sector. We would consider an upgrade in the event of a pullback to about $85. · We would also consider an upgrade if the shares looked relatively attractive in our Consumer Staples coverage. This could happen if we thought the valuation was compelling relative to Walmart Inc. or Costco Wholesale Corp. · The company's credit ratings are improving. S&P rates BJ's at BB+ with a stable outlook. This is only one upgrade from an investment-grade BBB-. · Our five-year rating on BJ is BUY. ANALYSIS INVESTMENT THESIS We are reiterating our 12-month HOLD rating on BJ's Wholesale Club Holdings Inc. (NYSE: BJ) as we believe the shares are fairly valued. We would consider raising our rating in the event of a pullback to about $85. We would also consider an upgrade if the shares looked relatively attractive in our Consumer Staples coverage. This could happen if we thought the valuation was compelling relative to Walmart or Costco. Our five-year rating on BJ is BUY. Over the next five years, we expect the company to increase earnings at a compound annual rate of roughly 10%, which is reflected in our valuation analysis. We expect this to be driven by a 2%-3% expansion in square footage, 2%-3% growth in comparable merchandise club sales (which exclude gasoline), an increase in membership income from strong renewal rates and growth in higher membership tiers, and lower interest expense. It is also likely the company will continue to repurchase shares. Competition from Costco and Walmart's Sam's Club, as well as from traditional grocery stores, could be a challenge for BJ's. BJ's is also concentrated in the Eastern U.S., which could make expansion tougher and limit the company's buying power. The flipside is that having premises that are somewhat concentrated makes it easier for the company to use its warehouses, trucks, and advertising more efficiently. BJ's says that a representative basket of 100 manufacturer-branded products typically sells for 25% less at its warehouses than at major supermarket competitors. That could be a source of market share gains in the current environment. BJ's also competes with and differentiates itself from other warehouse clubs by accepting manufacturers' coupons and offering smaller pack sizes and a wider assortment of fresh foods and deli items. BJ's store format may allow the company to open locations in areas where the real estate availability or population might not support a Costco or a Sam's Club. The company carries approximately 7,000 stock-keeping units (SKUs) and has discussed plans to reduce this to about 6,000. It made some reductions in sundries categories in fiscal 2Q22. Cutting SKUs can improve efficiency but limit customer choices. While traditional grocery stores may have more than 40,000 SKUs and Amazon.com Inc. reportedly offers more than 600 million (give or take a few hundred million), Costco does well with fewer than 4,000. We believe shoppers at warehouse clubs are focused on getting low prices on a limited number of key name-brand items. Clubs can increase the frequency of customer visits with "treasure-hunt" items such as North Face jackets, Titleist golf balls, designer accessories, and holiday gift baskets. They can also boost sales by selling big-ticket and discretionary items online. Costco is having success with attractive priced appliances and has even sold gold bars. Private brands accounted for about 27% of merchandise sales (excluding gasoline) in FY26, up from 10% in FY13. Private brands provide a way for clubs to offer lower prices than national brands, earn higher margins, and even increase their bargaining power with suppliers. Costco sold about $9 billion under its Kirkland Signature brand in its FY25. BJ's sells under the Wellsley Farms and Berkley Jensen brands. We are very encouraged by the strong and improving renewal rates at BJ's, as well as its steadily improving financial strength. In the case of Costco, it also doesn't hurt to be one of the very few retailers to have a business model that works internationally, to own 79% of your stores, to have more cash than debt, and to pay large special dividends out of cash on hand occasionally. We once heard former Costco CEO Jim Sinegal share the "secret" of the company's success: keep improving, take care of your customers, employees, and suppliers -- and you will be able to reward your shareholders. RECENT DEVELOPMENTS BJ shares have underperformed the market on a year-to-date basis, rising 3.3% while the S&P 500 rose 10.3%. Over the past year, they have declined 6.5%, compared to gains of 14.3% for the index and 10% for the State Street Consumer Staples Select Sector SPDR ETF (XLP). Over the past five years, the shares have gained 57%, compared to 68% for the S&P 500 and 6.1% for the ETF. The beta on the stock is very, very low at 0.12. Even before the increase in gasoline prices that followed the attacks on Iran, U.S. consumers had been looking for ways to save money and make ends meet amid elevated inflation. On August 21, BJ's reported earnings of $1.36 per diluted share for its 13-week fiscal 2Q27 ended August 1. The result was up 19.3% from the previous year's GAAP result and exceeded the StreetAccount consensus of $1.17 and our estimate of $1.14. Net sales increased 15.9% year over year to $6.09 billion. Our estimate was $5.68 billion, and the consensus was $5.84 billion. Comparable club sales increased 1.9%. Excluding gasoline, comps were up 3.1%, as traffic and units both increased. The StreetAccount consensus called for a 2.6% increase, excluding fuel. The company said traffic has now increased in 18 consecutive quarters. BJ's has gained market share for 14 consecutive quarters. The company raised its FY27 guidance range to $4.60-$4.80 from $4.40-$4.60. The Capital IQ consensus was $4.55 before the release. The company reiterated comp sales increase guidance (excluding gas) of 2%-3%. The StreetAccount consensus was 2.5% before the earnings release. "The K-shaped economy persists," CEO Bob Eddy said during the earnings call, adding, "The vast majority of our growth continues to be driven by our higher-income members, which is consistent with what we've seen for some time now." General merchandise and services comps increased 5.3% year over year in 2Q. Consumer electronics and home were strong categories. Comps in perishables, groceries, and sundries were up 2.8%. Comparable gallons of gasoline were up 10.5% and exceeded the plan for the quarter. Membership fees rose 9.9% to $136 million in the quarter, helped by the addition of new members. We believe membership fees also benefited from a fee increase that went into effect on January 1, 2025. That benefit will begin to moderate. Our estimate was $131 million. The StreetAccount consensus was $133 million. Adjusted EBITDA rose 14.3% to $347 million. Our estimate was $292 million. The gross margin of 16.0% was down 79 basis points (bps) from the prior-year quarter. The result was below our estimate of 16.20%. The merchandise margin, excluding gasoline sales, declined by approximately 20 bps on decisions to lower prices to drive business. The company had a benefit from tariff refunds in the quarter. The company said the margin drag from price reductions was partially offset by tariff refunds recognized. In the current environment, we agree with the company's actions to lower prices on key items. Selling, general, and administrative expenses rose by about 8.2% from the prior year to $851 million, or 13.7% of total revenue (down 97 bps). Our estimate was $835 million, with a 14.7% expense rate. Consensus was 14.0%. Depreciation expense increased year over year with more owned clubs. Preopening expenses of $6.4 million were above our estimate of approximately $5.0 million. Net interest expense rose to $13.1 million from $11.4 million in fiscal 2026. Our estimate was $11 million. Total debt, including leases, was 55.8% of capital, up from 55.7% a year earlier. Earnings before taxes were $239 million. Our estimate was $201 million. The company's effective tax rate of 27.3% matched the 27% we expected. Net income of $174 million was up 15.4% and slightly above our estimate of $147 million. Cash flow from operations was $542 million in 1H27, up from $458 million a year earlier. Net income was higher during the just-completed period. Accounts receivable were a use of cash rather than a source. Inventories were a bigger use of cash. Inventories on the balance sheet were up 6.3% year over year, driven by additional club openings. Inventory per club increased 2.0%. EARNINGS & GROWTH ANALYSIS We are raising our FY27 EPS estimate to $4.70 from $4.52. We made an increase to our sales forecast and adjusted the composition of our estimate of operating margin by reducing our gross margin estimate based on the likelihood for a higher mix of gasoline. We also reduced our estimate of the expense rate. We are maintaining our FY28 EPS estimate at $5.05. Our hope is that the company will win some loyalty and some business as a result of the price investments it is making this year. Consensus is approximately $5.05. Over the next five years, we expect the company to increase earnings at a compound annual rate of roughly 10%, driven by 2%-3% growth in square footage, 2%-4% growth in comparable merchandise club sales (which exclude gasoline), an increase in membership fees from higher renewal rates and growth in higher membership tiers, and lower interest expense. The company could also make modest share buybacks. We could potentially raise our estimate of square footage growth. FINANCIAL STRENGTH & DIVIDEND After the fiscal 1Q24 earnings release, we raised our financial strength rating for BJ's to Medium from Medium-Low. The "club" model works well for Costco and Amazon, and BJ's credit metrics have been steadily improving. Selling food and consumable items is also a generally stable business, and membership income with higher renewal rates provides additional stability. The company weathered the pandemic very well, which illustrates effective operations. On one hand, tariffs represent a challenge because the company doesn't have the margin structure to absorb significantly higher costs, but a low-cost structure and a relatively high concentration of food should help. Like Costco, the company sells very few items, so it can potentially adjust its merchandise. The company's mission to deliver value prices should help the stock in tough times. Our Medium strength category for consumer stocks is admittedly a big tent, but BJ's joins solid Lowe's Companies Inc., Best Buy Co., and Dick's Sporting Goods Inc. BJ's has been reducing long-term debt and has increased operating income and interest coverage since the IPO that brought the company public for a second time. It faces competition from Sam's Club and Costco. To be sure, it is better to earn slim profits than no profits, and companies that earn low margins in a high-volume business (grocery stores) often have less volatile cash flows than companies that earn high margins in a low volume business (jewelry stores). It is worth noting that we rated BJ's financial strength as Medium-High when we covered it during its previous life as a public company. Before being acquired, the legacy company had higher real estate ownership than the current holding company and often generated more interest income than interest expense. That said, the current company has made excellent progress since the IPO. Total debt, including operating leases, has declined by about $1 billion, from $3.8 billion in FY20, to $2.77 billion at the end of fiscal 2027. Debt has declined from 101% of capital in FY20 (when shareholders' equity was negative) to 56% at the end of fiscal 2027. When we covered the stock back in 2011, we estimated lease-adjusted debt at 50% of capital. At the end of FY24, BJ's had $19 million on the revolver, and the balance on the term loan was down to $400 million from $450 million a year earlier. At the end of fiscal 2Q27, the balance on the revolver was $230 million. The term loan was $400 million. Debt was about 2.4-times adjusted EBITDA at the end of FY23. By the end of fiscal 4Q26, total debt, including leases, was about 1.8-times EBITDA. In our 4Q earnings note, we wrote that this made the argument for investment-grade ratings a credible one. Indeed, on May 22, Fitch raised its long-term issuer default rating to an investment grade BBB. Fitch rated the revolver and the term loan BBB-. Debt was also 1.8-times EBITDA for the 12 months ended August 1, 2026. Adjusted EBITDA of about 15-times FY22 interest expense, 30-times interest expense for FY23, 22-times for FY24, 28-times for FY25, and 35-times for FY26 is very solid. The company-provided net debt/trailing EBITDA ratio is very low, at 0.5 times. This does not include leases. We are cautious when using net debt (although the ratio is widely applied) because it is difficult to determine how much of the cash on the balance sheet is excess cash that can be redeployed and how much is working capital. The company's credit ratings are improving. S&P rates BJ's at BB+ with a stable outlook. This is only one upgrade from an investment-grade BBB-. The company's revolver and term loan have covenants. According to the FY26 annual report, BJ's owned 30 of its then-263 club locations and 23 buildings on leased ground at the end of FY26. On January 31, it had 263 warehouses and 199 gas stations. The 2Q27 balance sheet lists the value of property and equipment at about $2.6 billion. Like other warehouse clubs, BJ's has relatively low margins but turns its inventory rapidly, about 11-times per year in FY26 and almost 12-times over the last 12 months. BJ's does not pay a dividend, and we do not expect it to pay one in FY27 or FY28. The annual report says that investors seeking cash dividends in the foreseeable future should not purchase BJ's common stock. While we are not forecasting a dividend this year or next, the company's finances have improved significantly. And while BJ's does have opportunities to invest capital productively in new clubs, we believe that adding a small dividend would send a signal about its financial strength, which could attract new investors to the stock. The company repurchased $130 million of shares in FY24, $190 million of shares in FY25, and $252 million of shares in FY26. At the end of the third quarter in FY25, the company announced a new $1 billion repurchase plan, which expires in 2029. BJ's repurchased $331 million of shares in 1H27. There was $422 million of capacity on the plan at the end of 2Q27. MANAGEMENT & RISKS Bob Eddy became the company's president and CEO in April 2021 after the unexpected death of Lee Delaney earlier that month. Mr. Eddy previously became SVP, Finance in 2007 and executive VP and CFO in 2011. Prior to joining BJ's, Mr. Eddy was a member of the audit and business advisory practice at PwC. The death of Mr. Delaney led to several management changes. However, Mr. Eddy announced on the fiscal 1Q21 earnings webcast that he would maintain the company's strategy, which he developed with Mr. Delaney. The company continues to focus on data analysis and strong cost controls. It is also taking a more proactive approach to growing its membership base. The company named Laura Felice CFO in 2021. She had previously served as SVP and controller since 2016. Like Mr. Eddy, Ms. Felice previously worked at PwC. We believe the greatest risk to BJ's comes from its two larger rivals, Costco and Walmart's Sam's Club division, which both have much higher sales. BJ's ended 2Q27 with 267 clubs in 22 states, while Costco has 647 domestic clubs and Sam's Club has 602 domestic clubs. Costco has 939 clubs globally, and Sam's has approximately 845 clubs globally. That said, BJ's has more clubs than its competitors in some core markets. At the end of FY26, slightly more than half of these clubs were in four states: New York (50), Florida (43), Massachusetts (26), and New Jersey (24). One challenge could be profitably expanding the company's footprint outside of its core Northeastern markets. Large-format stores are typically more profitable when they can add locations in areas where they already have a distribution network and an established brand. The company also faces risks from Walmart's plan to dramatically boost spending on e-commerce and merchandising over the next few years. BJ's benefited from increased online shopping during the early months of the pandemic and substantially expanded its customer base. Management notes that its online customers have 30% larger shopping baskets and average five more shopping trips per year than those who shop only at brick-and-mortar stores. BJ's membership is up substantially from the time of its IPO, and management believes the quality of its membership base has also improved. Membership fees have grown at a compound annual rate of 8.5% over the last five years. The company reported a record "renewed" renewal rate of 90% in FY26, FY25, FY24, and FY23 and 89% in FY22, up from 88% in FY21, 87% in FY20 and FY19, and 86% in FY18. More than 75% of members are now on an automatic renewal system. Effective January 1, 2025, BJ's raised the Club membership fee to $60 from $55. Some 38% of members are in higher tiers, such as the Club+, which rose to $120 from $110 per year and gives customers cash back on most BJ's purchases. Membership fee income has increased for 25 years. Like other retailers, BJ's is sensitive to changes in consumer spending. However, its low prices and large percentage of staples may provide some cushion in a weak economy. Approximately 4%-7% of the company's sales have come from EBT payments (i.e., food stamps) over the last several years. We do not have a specific number for FY26. In our view, the company could experience lower gross margins during periods of rising gasoline prices. Unlike many sellers of gasoline, whose prices might rise more quickly than their costs, warehouse clubs often try to keep gas prices low as a service to members. While this hurts gross margins, it also drives store traffic and gives shoppers a reason to renew their memberships. BJ's is involved in some litigation. However, in its FY25 annual report, management indicated that it did not expect legal issues to have a material adverse impact on the financial statements. The annual report notes that the company's "anti-takeover defenses" could discourage or delay a change in control and make it more difficult for outside stockholders to enact change. PwC has been the company's auditor since 1996. COMPANY DESCRIPTION BJ's Wholesale Club Holdings Inc. owns BJ's Wholesale Club, which operates a chain of warehouse clubs in the Eastern U.S. BJ's positions itself between traditional grocery stores and warehouse clubs like Sam's Club and Costco. It offers a wider range of items and smaller pack sizes than Costco and Sam's and prices that aim to be about 25% lower than grocery stores. The company posted total revenue of $21.5 billion in FY26, which ended on January 31, 2026. FY26 income from membership fees represented 2.3% of total revenue and 61% of operating income. The company sells name-brand merchandise and food to over 8 million members, who are small business owners and consumers. Based in Marlborough, Massachusetts, the company also offers specialty services, including tire installation and optical services. At the end of fiscal 4Q26, the company operated 263 BJ's clubs and 199 gas stations in 21 states. More than half of the clubs are in four states: New York, Florida, Massachusetts, and New Jersey. About 23% of FY26 sales were generated in the New York City metro area (down from 25% in FY21 and FY20). Clubs range from 44,000 to 177,000 square feet. BJ's sells a relatively narrow assortment of approximately 7,000 SKUs, which it has discussed trimming to about 6,000 to improve inventory turnover. Groceries represented 72% of the company's FY26 net sales (71% in FY25, 70% in FY24, 67% in FY23, 71% in FY22). General merchandise and services accounted for 11% of net sales in FY26, FY25, and FY24, 12% in FY23, and 14% in FY22. Gasoline rose to 21% of net sales in FY23 from 15% in FY22 and 9% in FY21. Gas was 19% of sales in FY24, 18% in FY25, and 17% in FY26. VALUATION BJ stock has slipped about 6.5% in the last year. We believe the shares are fairly valued at current levels. The company sells a high percentage of food and consumer staples (which tend to have steady demand) and has recurring revenue from membership fees. On the negative side, it has low margins and faces competition from grocery stores and from other larger warehouse clubs such as Costco and Sam's Club. The shares trade at 19.8-times our FY27 estimate and 18.4-times our FY28 estimate. Based on our analysis using a dividend discount model, we believe BJ is worth about $101 per share. Our analysis begins with our FY27 and FY28 adjusted EPS estimates of $4.70 and $5.05. We are assuming that EPS rises at our five-year growth rate of 10% in FY29, FY30, and FY31, followed by a five-year transition period where growth decreases to 3% and the company initiates a dividend with a payout ratio increasing from 17% to 85%. Our input for the company's cost of equity is 7.75% in the growth phase of our model. In the stable growth phase, where we assume 3% growth and an 85% payout ratio, our cost of equity is 7.2%, which reflects our expectation that debt reduction will lead to a lower interest expense. We use a 6.5% cost of equity for Costco, which is one of the strongest and most consistent companies in our coverage, has full ownership of almost 80% of its clubs, has an AA credit rating from S&P, more cash than debt, top-tier commercial paper ratings, debt (including leases) of less than EBITDA, and a history of paying large special dividends on top of its regular dividend. Our long-term growth rate of 10% is above the Capital IQ median of 6.45%, and even above the high of 8%. There are only three estimates. The median target price on the shares is $106, with a range of $79 to $120. There are 20 estimates. We evaluated a scenario in which we reduced the five-year growth rate to 8% and reduced the cost of equity during that phase to 7.5% from 7.75%. The value of the shares was little changed, at $99. We believe BJ shares are trading near fair value after a strong run-up during the pandemic driven by nice improvements in operations and member loyalty. We are maintaining our HOLD rating. One factor is that Argus has an Under-Weight rating on the Consumer Staples sector. We would consider an upgrade in the event of a pullback to about $85. On September 18, HOLD-rated BJ closed at $92.03, down $1.31. (Christopher Graja, CFA, 9/18/26) --- [Disclaimer / Footer - Image 8] MARKET DIGEST Argus Research Co. (ARC) is an independent investment research provider whose parent company, Argus Investors' Counsel, Inc. (AIC), is registered with the U.S. Securities and Exchange Commission. Argus Investors' Counsel is a subsidiary of The Argus Research Group, Inc. 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