On Friday, Evercore ISI increased its price target for Ross Stores, Inc. (NASDAQ:ROST) to $165 from the previous $155, while maintaining an Outperform rating on the stock. The firm highlighted several key factors contributing to the positive outlook for the discount retailer.
The revision in the price target is based on the expectation of a stronger fourth-quarter same-store sales (SSS) performance, now anticipated to rise by 5%, up from the previously estimated 3%. This forecast surpasses the general market consensus of a 2% increase. According to the firm, Ross Stores may surpass Marmaxx, its competitor, in same-store sales growth for the first time since the fourth quarter of 2020.
The firm also noted that Ross Stores is entering the first quarter with more favorable comparisons, as its comparative figures are 4 percentage points easier than those of Marmaxx. Furthermore, despite 22% of Ross Stores' locations being in California where they are estimated to have underperformed by 9 percentage points due to weather conditions in the first quarter of 2023, the overall outlook remains strong.
In terms of profit margins, the firm expects Ross Stores' margins in 2023 to be 230 basis points below their 2019 levels, which is considered a more manageable narrative compared to TJX Companies (NYSE:TJX), which has already returned to its 2019 margin levels in 2023.
Summing up the factors, Evercore ISI has positioned Ross Stores on its Top 5 Outperform List, replacing TJX Companies. The list also includes Ulta Beauty (NASDAQ:ULTA), PVH Corp (NYSE:PVH)., Burlington Stores (NYSE:BURL), and Lululemon Athletica (NASDAQ:LULU). The firm's analysis indicates that the near-term same-store sales and margin upside narrative is more favorable for Ross Stores.
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