Cowen On Burlington Stores: Stock Can Go Higher If Productivity Goals Are Reached

The brokerage raised its price target on the stock to $90 from $79 after Burlington delivered a "high quality" second-quarter sales and EPS beat. Burlington Stores reported adjusted EPS of $0.39, exceeding Cowen's and consensus estimates of $0.28 and $0.30, respectively, and its recently pre-announced guidance for $0.28–$0.30.

The quarterly SSS of +5.4 percent was above BURL's preannounced range of 4 to 4.5 percent, driven by traffic, UPT and conversion. Further, the company's revised guidance takes FY16 EPS to $2.92–$2.96, above consensus of $2.90.

Related Link: MKM Upgrades Burlington To Buy, Sees "Sizable Opportunity For Earnings Upside"

"Narrowing the gap in sales/store productivity between TJX Companies Inc TJX and Ross Stores, Inc. ROST could produce $5 in EPS by 2019," analyst John Kernan wrote in a note.

Kernan, who maintains his Outperform rating on the stock, noted that the company's growth strategies have started to bear fruit, fueling momentum carryover into FY17 and beyond.

The analyst said the company's store growth and low-single-digit SSS creates a sustainable high-single-digit top-line trajectory for the foreseeable future.

"While department store inventories are now better positioned, we think BURL's packaway and appeal to vendors remains positive into 2017 and opportunistic buys and share gain prospects will still materialize," Kernan highlighted.

By FY2020, the analyst expects Burlington's EPS potential of $5.47 driven by +6 percent sales CAGR and operating margin expansion to 9 percent (still well below peers) from 6.6 percent in FY15.

"Applying a peer group (including TJX and ROST) FCF multiple on 2020 estimates implies prospects for BURL to reach roughly a $9+ billion market cap vs. $5.5 billion currently," Kernan added.

At time of writing, Burlington was up 0.3 percent on the day at $81.19.

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