TD Cowen thinks investors are overlooking a buying opportunity in Ross Stores . Analyst John Kernan upgraded the retailer’s stock to outperform from market perform and raised his price target to $128 from $113. Kernan’s price target implies upside potential of 14.5% from Wednesday’s close. “Our proprietary data shows off-price is significantly outpacing overall retail traffic as value proposition resonates, while the availability of inventory is increasing based on our work,” Kernan wrote in a Thursday note. “Consensus is underestimating margin recovery due to supply chain cost deflation, accelerating [same-store sales] and improving store productivity.” According to Kernan, data from Cowen’s consumer tracking survey indicates a sequential uptick during May, June and July in visitation to off-price vendors such as Ross. The survey indicated that traffic in Ross Stores reached a peak of 25% in May before easing slightly in June, and then reaccelerating to 25% in July. “Our data for traffic suggests that ROST’s comp guidance for Q2:23 is conservative as Ross reported getting sharper on price points to reflect better branded values for its customers,” Kernan said. If the retail company can sustain higher sales, Kernan sees a “multi-year path” for it to get back near its pre-pandemic EBIT margin range of 13% to 14% by fiscal year 2027. Ross recently opened 18 Dress for Less and nine dd’s Discounts stores in 14 states. The company plans to open approximately 100 new stores during fiscal 2023. — CNBC’s Michael Bloom contributed to this report.
