Morgan Stanley Raises Burlington Stores’ Target Price to $317, Shares Hit Record High
Morgan Stanley raised their stock price forecast on Burlington Stores to $317 from $290, reiterating an “Overweight” rating on the national off-price department store retailer and said rationalized comp-store inventory, improved opex leverage on a higher revenue base, and the accelerated opening of smaller format stores make a 12% EBIT margin visible in 2024.
Burlington Stores’ shares, which surged about 15% in 2020, rose over 19% so far this year. On Friday, the stock hit an all-time high of $311.74.
“Commitment to ‘full execution of the off-price model’ leaves us more confident in sales and margin upside following meetings with management. We raise our BURL price target to $317 and we see an upside to our $360 Bull Case. Management reiterated its expectation it could narrow at least 300 bps of the EBIT margin differential versus off-price peers medium-term. BURL’s EBIT margin stood at 9.2% (management adjusted) in 2019 compared to 13.4% for ROST and a 13.5% segment EBIT margin (ex-corporate overhead) for TJX’s Marmaxx,” noted Kimberly C Greenberger, equity analyst at Morgan Stanley.
“We now forecast BURL could achieve a 12.0% Bull Case EBIT margin in 2025 (10.7% prior), which could prove conservative: 1) We forecast 2021 gross margin will expand 125 bps to 43.0% from 41.8% reported in 2019. Covid-19 accelerated optimization of comp store inventory, which fell 31% at the end of 4Q20 on a 2-year basis; 2) Home, beauty, and ladies’ apparel category expansion could drive $300+ in revenue on a per selling square foot basis by 2024, improving opex leverage by 150 bps despite incremental merchant organization investments; 3) Our work suggests the accelerated opening of smaller format stores could lower BURL’s lease expense ratio by 100+ bps medium-term compared to 7.9% reported in 2019.”
On March 4, New Jersey-based retailer reported quarterly earnings of $2.44 per share, higher than Wall Street’s consensus estimates of $2.12 per share, representing a year-over-year decline of about 25% from $3.25 per share seen in the same quarter a year ago.
Burlington Stores’ total sales increased 4% to $2,279 million, and comparable-store sales were flat. While comparable-store sales were down 10% in November due to unfavorable weather, comparable-store sales trends improved significantly thereafter, improving to flat in December and to a 17% increase in January, as weather normalized and federal stimulus payments were disbursed.
Fourteen analysts who offered stock ratings for Burlington Stores in the last three months forecast the average price in 12 months at $308.00 with a high forecast of $355.00 and a low forecast of $255.00.
The average price target represents a -1.13% decrease from the last price of $311.51. Of those 14 equity analysts, 13 rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.
Other equity analysts also recently updated their stock outlook. Citigroup reaffirmed a neutral rating and issued a $258 price target. Royal Bank of Canada upped their price target to $320 from $295 and gave the company an outperform rating. Deutsche Bank upped their price target to $320 from $279 and gave the company a buy rating.
“Strategic enhancements under new leadership likely narrow the EBIT margin gap vs. off-price peers, leading to mid-teens EPS growth. Category growth, improving store productivity, inventory optimization, and a strong expense culture keep us constructive,” Morgan Stanley’s Greenberger added.
“Upward EPS revisions appear an ongoing positive share price catalyst. Profit flow-through is magnified when comps exceed management’s conservative 1-2% plan.”
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This article was originally posted on FX Empire
