Barron’s Calls Ross Stores a “Unique Bargain”

At Barron’s, Teresa Rivas has nice things to say about Ross Stores (ROST):

Make no mistake: Ross Stores, which has a market value of $44 billion, is far from putting the pandemic behind it. Visits to stores were up 6.5% in the fourth quarter, but they’re still down by the mid- to high-single digits from their prepandemic peak. That’s probably a result of the Dublin, Calif.–based company’s exposure to its home state and others, such as Florida and New Jersey, that have seen slower in-store traffic recoveries. That geographic mix is still a near-term headwind and could show up in next week’s fourth-quarter report. Ross is expected to report a profit of $1 a share, down from $1.28 in the year-ago period, on sales of $4.3 billion, off 3.3% year over year.

Longer term, however, the geographic exposure could create a “more meaningful recovery in fiscal 2022,” notes MKM Partners analyst Susan Anderson. She has a Buy rating on Ross and recently raised her price target on the shares to $138 from $124, and sees “off-price as among the best-positioned segment to recover postpandemic, and to gain outsize share in the retail landscape.”

There’s also evidence that shoppers are eager to return to the in-person treasure-hunt model that has fueled the group’s yearslong gains. According to data from Placer.ai, off-price retailers have seen an “impressive recovery pattern,” both in terms of foot traffic and sales, since the third quarter. All three major players have seen visits rebound to within 10% of January 2020’s prepandemic levels, while TJX’s T.J. Maxx has returned to positive traffic growth.

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Ross’ earnings per share are expected to rebound from $1.21 in fiscal 2020, which ended in January, to $4.53 in fiscal 2021—a 274% increase that isn’t far behind the big gains expected for its peers—while sales are expected to rise 34% year over year to $16.8 billion. But at 26 times 12-month forward earnings, Ross’ stock valuation is on par with TJX’s, and is cheaper than Burlington’s, at 38 times. Just trading at 30 times forward earnings would put the stock at $136, a 10% gain. Or, it can simply grow faster than the market expects. That’s how Anderson, who forecasts a $5.10 per share profit in fiscal 2022, arrives at her target of $138, up 12% from Wednesday’s close.

Posted by on February 26th, 2021 at 11:23 am


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