Ahead of the bell: analyst upgrades Ross Stores

Analyst upgrades Ross Stores on strong business model, opportunities for expansion

Associated Press

NEW YORK (AP) -- Discount retail operator Ross Stores Inc. has a strong business model and a lot of opportunity for new stores, a Sterne Agee analyst said Thursday as he upgraded the stock to "Buy."

Discount stores have benefited as shoppers worried about jobs and the economy continue to shop carefully. In its most recent quarter, which ended May 4, Ross said its net income rose 13 percent while revenue rose 7 percent to $2.54 billion, ahead of expectations. The company also increased its full year forecast.

But Sterne Agee analyst Ike Boruchow said in a note to investors that the guidance is still conservative, and Ross could beat expectations.

Boruchow added that Ross, the No. 2 discount retailer behind TJX Cos. with an estimated 24 percent share of the $40 billion market has one of the most consistent models in retail, since its discounts appeal to consumers in all economic environments, its customer retention is high and it has a flexible buying operation that lets it buy trendy merchandise at good prices.

It also has significant growth potential. Its store target is 2,500 and it has 1,227 stores currently, he said, which could potentially narrow the gap with industry leader TJX in the U.S. Meanwhile TJX has saturated the U.S. market and mainly has overseas growth prospects.

Ross Stores shares rose 50 cents to $64.03 in premarket trading Thursday. They have risen 18 percent this year.

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