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What's Next For Five Below?

Jayson Derrick

Buckingham's bullish stance on Five Below Inc (NASDAQ: FIVE) remains unchanged after the company's fourth-quarter results, a stance KeyBanc doesn't agree with.

The Analysts

Buckingham Research Group's Bob Summers maintains a Buy rating on Five Below with a price target lifted from $135 to $145.

KeyBanc Capital Markets' Bradley Thomas maintains at Sector Weight.

Buckingham: Momentum Across All Metrics

Five Below's earnings showed continued momentum across all relevant metrics, Summers said in a research report. Most notably, EPS of $1.59 beat expectations of $1.57 per share while comparable store sales of 4.4 percent beat the consensus estimate of 4.2 percent.

Management's full-year 2019 EPS guidance of $3.00 to $3.07 fell short of consensus estimates of $3.13, but Summers said management did a "good job" of explaining the shortfall. Specifically, management explained multiple transitory cost pressures ahead which helped investors "look through the noise."

Adjusting for cost pressures along with accounting changes and a new distribution center, the 2019 guidance would have come in-line with expectations.

View more earnings on FIVE

So long as Five Below continues to show strong unit economics, positive comps, and unit growth investors will "remain relatively valuation insensitive," Summers wrote.

See Also: Five Below's Ability To 'Comp The Comp' Earns An Upgrade

KeyBanc: Valuation Concerns

Five Below's quarter shows the company's momentum is broad-based and not just limited to toys and games, Thomas said in a research report. The company remains among the most compelling growth stories in retail space as it operates as a "defensible tween discount niche."

In fact, Thomas said Five Below offers value that's "not replicated" at Amazon.com, Inc. (NASDAQ: AMZN) since the retailer works with manufacturers for its own products that sell below $5. The company's positioning is expected to translate to annual store growth rate in the high-teens to 20 percent, 20 percent average annual sales growth, and similar net income growth rates through 2020.

Shares of Five Below are trading at 39.3 times 2019 estimated EPS and 31.6 times 2020 EPS, respectively. This compares to a five-year average forward P/E of 32 times, so the stock's premium valuation warrants a neutral stance at this time.

Price Action

Shares of Five Below were trading higher by 6.6 percent at $127.96 Thursday afternoon.

Photo credit: Mike Mozart, Flickr

Latest Ratings for FIVE

Date Firm Action From To
Mar 2019 Morgan Stanley Maintains Overweight Overweight
Mar 2019 Buckingham Maintains Buy Buy
Mar 2019 Credit Suisse Maintains Neutral Neutral

View More Analyst Ratings for FIVE
View the Latest Analyst Ratings

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