UPDATE: Bank of America Initiates Coverage on The Container Store Group as High-Quality Growth Warrants a Premium

In a report published Tuesday, Bank of America analyst Denise Chai initiated coverage on The Container Store Group TCS with a Buy rating and $48.00 price target. In the report, Bank of America noted, “We view The Container Store (TCS) as one of the most compelling and high quality growth opportunities in Hardline retail, thanks to its high barriers to entry and potential to expand its store base fivefold long term. We forecast revenue, EBITDA and EPS to grow at a 10%/14%/34% CAGR from 2012-2015, making it one of the fastest growing companies in BAML's retail universe. Our PO of $48 is based on 48x our 2015E P/E, representing 1.1x PEG and 22x EV/EBITDA. TCS' strong customer service, pricing power and vendor relationships as well as its unique assortment and corporate culture underpin enduring competitive advantages, in our view. We think TCS' proven, scalable model generates superior four-wall productivity and earnings visibility from the outset. As it grows from 63 stores to 300 long term, we believe increased scale will support 215bp of operating margin expansion to 8.8% by 2015, while deleveraging from 4.9x adj debt/EBITDAR to 4.0x will deliver outsized net income growth. TCS' track record of never having closed a store in 35 years for underperformance stands alone, in our view.” The Container Store Group closed on Monday at $38.20.