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Wedbush Stays Bullish On Discount Retail, Prefers Burlington Stores

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Wedbush Stays Bullish On Discount Retail, Prefers Burlington Stores

Morry Brown of Wedbush is bullish on off-price retailers and favors Burlington Stores Inc (NYSE: BURL) due to its margin expansion potential.

“We retain our view that off-price appears generally Amazon.com, Inc. (NASDAQ: AMZN) proof. Pricing at off-price remains largely below online pricing, providing significant value to customers,” Brown wrote in a note.

Wedbush Talks To Former Burlington Exec

Wedbush met with Paul Metcalf, former chief managing officer of Burlington Stores, who highlighted that online browsing has challenges replicating the in-store experience. Vendors also remain reluctant to promote their brands online at discount pricing given brand erosion concern.

In fact, Metcalf noted that online retailers could be more of a source of supply to off-price retailers in the near term as slow-moving goods accumulating in online warehouse are batched together and sold to off-price.

The Off-Price Sector

Meanwhile, vendors too benefit from the off-price channel, which is continuing to drive revenue growth, while department stores face sluggish sales.

On Burlington Stores, Metcalf is positive on the company’s margin expansion potential, given opportunities across nearly all line items. Notably, he called out localization and allocation as large opportunities to close the gap between Ross Stores, Inc. (NASDAQ: ROST) and TJX Companies Inc (NYSE: TJX).

Metcalf believes the company could generate positive EBIT leverage even if the comp environment were to slow to the +1–2 percent range.

Analyst's Rating, Price Target

Brown maintains his Outperform rating and $107 price target on Burlington due to favorable industry dynamics, and meaningful opportunity to grow sales and margins. For the fourth quarter, the analyst’s EPS estimate of $1.77 is $0.07 above Street’s $1.70 estimate.

Burlington will report its fourth-quarter results on March 2.

"We continue to view the sector favorably, and view BURL as the name with the most earnings leverage to continue positive trends in off-price retail," Brown added.

Shares of Burlington Stores closed Tuesday’s trading at $82.68. In the pre-market hours Wednesday, the stock was down 2.64 percent to $80.50.

Latest Ratings for AMZN

DateFirmActionFromTo
Dec 2019AssumesBuy
Nov 2019Initiates Coverage OnHold
Oct 2019MaintainsMarket Outperform

View More Analyst Ratings for AMZN
View the Latest Analyst Ratings

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