Goldman Removes Ross Stores From Conviction Buy List, But Says It's 'Still The Boss'

Goldman Sachs’ Stephen Grambling removed Ross Stores, Inc. ROST from its America Conviction List, and downgraded the rating for the company from Buy to Neutral. The analyst said that the stock had outperformed in recent months and that there was limited upside in the near future. The price target for Ross Stores is at $61.

Ross Stores’ shares have appreciated 25 percent since November 13, 2015, versus a 4 percent decline in the S&P500.

Strong Fundamentals

Analyst Stephen Grambling believes that Ross Stores’ robust fundamentals should prove to be beneficial as excess inventory in the apparel channel provides better buying opportunities. The company’s margins are set to expand in FY16.

“ROST also has the lowest leverage among its off-price peers, providing the flexibility to ramp buybacks or the dividend over time given a 4.7% unlevered FCF yield,” Grambling wrote.

Stronger same-store sales and the corresponding leverage are expected to allow the company to perform well in the near future. Grambling expects the company’s relatively less exposure to ecommerce to allow it to gain market share.

“This favorable view appears to be well understood by investors with the shares near their five-year peak valuation on our above-consensus estimates. As such, we believe a Neutral view is warranted and we would look for a pullback to become more constructive, all else equal,” the Goldman Sachs report stated.