Morgan Stanley Thinks Ross Stores Was 'Stellar Across The Board'

Ross Stores, Inc. ROST reported Thursday its third quarter earnings, which exceeded expectations by a notable margin.

The Analyst

Morgan Stanley's Kimberly Greenberger maintains an Overweight rating on Ross Stores' stock with a price target boosted from $70 to $77.

The Thesis

Ross Stores' earnings report was "stellar across the board" and exceeded even the "most bullish expectations," Greenberger said in a note. For instance, the off-price retailer's 4 percent comp not only came in ahead of expectations of a 1-2 percent comp, but could prove to be "one of the best results in our coverage" on both a one-year and two-year basis. The company also benefited from both traffic and units per transaction, which is particularly impressive at a time when the retail environment as a whole is volatile.

Management's fourth quarter comp guidance of 2 to 3 percent is merely "icing on the cake" and could prove to be conservative given the strong momentum seen in the third quarter, the analyst said. Investors could expect to see "significantly more" earnings upside and the market will "continue to reward the stock."

Off-price retailers like Ross Stores continue to steal market share from department stores and specialty retailers and there are "no signs of the beat and raise story stopping in 4Q or 2018."

Price Action

Shares of Ross Stores were trading higher by more than 8 percent Friday morning at $71.50, which is above the stock's 52-week high of $69.81.

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