RBC Upgrades Ascena Retail, Notes 'Sizable' EPS Power

In a report published Friday, RBC Capital analyst Brian Tunick upgraded the rating on

from Sector Perform to Outperform, while raising the price target from $16 to $20. The analyst expects the company's EPS to grow significantly, following the

deal. The analyst expects further upside to the EPS with recover in margins at Lane Bryant and Justice. The risk/reward profile offered by the stock would be favorable, especially if the Ann acquisition turns accretive immediately, offering synergies worth $150 million. "We see a more balanced EBITDA profile in the ANN/ASNA company, thus providing a margin cushion as legacy brands offset ANN volatility (or vice versa) and the $150MM synergies are realized," Tunick said. There are several tailwinds in store for Ascena, including the closure of the Ann deal in 1H15, on track turnaround at Justice, fundamentals improving at Lane Bryant, positive momentum at Catherines and Maurices and inventory discipline.