Ascena (ASNA): Zacks Rank Buy

Zacks

Ascena Retail (ASNA) is a Zacks #1 Rank (Strong Buy) after posting five upside surprises in the last six quarters and getting higher estimates for 2012.

Company Description

Ascena Retail Group, Inc. operates as a specialty retailer of apparel for women and tween girls in the United States, Puerto Rico, and Canada. The company operates its stores under the Dressbarn, Maurices, and Justice brand names. Ascena Retail Group operated approximately 2,500 stores.

ASNA Tops Expectations in Five of Last Six

ASNA has beaten the Zacks Consensus Estimate in five of the last six quarters. Over the course of those five beats, Wall Street hasn't been too excited, with the stock moving less than 2.5% on four of the six beats.

A beat of $0.01 in the April 2011 quarter seemed to register will Wall Street, as the stock moved higher by nearly 7%. The following quarter showed a loss of $0.01 and the stock moved lower by 0.7%.

ASNA Recently Reported Earnings

On March 1, 2012 the company reported revenue of $862 million roughly $29 million more than the Zacks Consensus Estimate and higher than the $752 million reported in the year ago period. EPS of $0.81 was $0.14 ahead of the estimate or a 21% beat. As a result the stock moved higher by 6.5%.

Earnings Estimates Bumped Up

Following the most recent earnings report, analysts bumped up their earnings estimates for 2012. The Zacks Consensus Estimate for 2012 EPS moved from $2.66 in February 2012 to the current level of $2.79. 2013 estimates also moved higher from the $2.98 level reached in February 2012 to the current level of $3.15. That implies an earnings growth rate of 13%.

Valuations

ASNA trades below the industry average on several metrics that aggressive growth investors look at. Price to forward earnings of 15.5x compares favorably to the 18.4x industry average. The trailing twelve month PE of 16X shows an even deeper discount to the industry average of 23x. The more conservative measure of price to book shows ASNA trading a little below the industry average. Price to sales is the only multiple that shows a ASNA trading at a premium, but it is a slight one at that with a 1X multiple versus the 0.88x industry average multiple.

The Chart

A quick look at the price and consensus chart shows that ASNA has been an analyst favorite for some time. Estimates are consistently well ahead of the stock price, a sign that the stock is undervalued in terms of earnings. ASNA is a Zacks #1 Rank (Strong Buy).

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Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

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