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Why Ross Stores (ROST) is a Sound Investment Option Now

Zacks Equity Research
Updated

Investors must take a look at off-price retailer, Ross Stores, Inc. ROST, as it is poised well backed by solid earnings trend, effective merchandising initiatives and store growth potential. Notably, the stock carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 11.4%. Also, its share price has increased over 28% year to date. Let’s delve deeper to explore this promising stock.

Growth Strategies

Ross Stores focuses on merchandising organization through investments in workforce, processes and technology to keep itself firmly placed on the growth trajectory. Moreover, the company constantly organizes its merchant group, which enables it to steadily expand market coverage in the vendor community while enhancing relationships with a broad network of existing and new resources. We believe these initiatives will strengthen Ross Stores’ buying operations, facilitating the purchase of on-trend merchandise at attractive prices.

Also, this apparel and home accessories retailer remains on track with respect to its store expansion program. Going forward, the company has a target of expanding its store count to 2,500, comprising 2,000 Ross and 500 dd’s DISCOUNTS stores.

Notably, Ross Stores has a proven business model as the competitive bargains it offers continue to make its stores attractive destinations for customers in all economic scenarios. Also, the off-price model offers strong value proposition and micro-merchandising that drive better product allocation and margins. We believe this will help sustain its top- and- bottom-line growth trends.

ROSS STORES Price and Consensus

ROSS STORES Price and Consensus | ROSS STORES Quote

Spectacular Q3 Performance

Ross Stores has delivered positive earnings surprises in nine of the past 10 quarters. It reported robust third-quarter fiscal 2016 results. Both top and bottom lines exceeded estimates and management’s projections. Also, earnings and sales improved year over year.

The strong results were attributable to impressive dd’s DISCOUNT performance as well as improvement in the ladies’ apparel business as customers favorably responded to its improved merchandise. (Read more: Ross Stores Q3 Earnings & Revenues Beat, Stock Up)

However, management expects to face challenges related to strong comparisons, amid macroeconomic uncertainty and a volatile retail landscape. Further, the company trimmed its fourth quarter earnings guidance due to the aforementioned headwinds. However, it raised its earnings forecast for fiscal 2016 on the back of solid year-to-date results. Consequently, the Zacks Consensus Estimate moved north. Over the past seven days, the Zacks Consensus Estimate of $2.81 and $3.09 for fiscal 2016 and fiscal 2017 increased 6 cents and 4 cents, respectively. Also, the company remains confident of performing well in the upcoming holiday season.

Other Stocks to Consider

Other favorably ranked stocks in the retail space include The Children's Place, Inc. PLCE, Burlington Stores, Inc. BURL and Target Corporation TGT.

The Children's Place with a long-term earnings growth rate of 10.3% has surged roughly 90% year to date. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, a Zacks Rank #1 stock, has a long-term earnings growth rate of 18.4%. The stock has skyrocketed nearly 109% year to date.

Target, which carries a Zacks Rank #2, has a long-term earnings growth rate of 8%. The stock gained 14% in the past six months.

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