Analyst: Burlington's Q4 Could Be A 'Home Run'

Burlington Stores Inc BURL's third quarter results were highlighted by another beat and raise, as the company continues to benefit from a shift in the retail landscape toward off-price retailers.

The Analyst

Morgan Stanley's Kimberly Greenberger maintains an Overweight rating on Burlington Stores' stock with a price target increase from $107 to $116.

The Thesis

Burlington Stores' pre-announced its third quarter results in late October, yet the EPS reported on Tuesday surprised to the upside at 70 cents and grew 37 percent from a year ago, Greenberger said in a Wednesday note. (See Greenberger's track record here.) 

Breaking down the EPS beat shows that 6 cents came from "true operating outperformance" and the other 3 cents came from share-based compensation accounting, Greenberger said. 

The earnings report also showed a 100 basis point margin expansion due to lower markdowns and an increase in merchandise margin, the analyst said. In fact, coupled with the 3.1 percent comp gain in the quarter, Burlington is showing it's in the early innings of strong execution under Chief Merchandising Officer Jennifer Vecchio, Greenberger said. 

Perhaps more important to the case in owning Burlington Stores' stock is an upcoming "home run" performance in the fourth quarter, Greenberger said. The retailer has "greater exposure" to cold weather goods versus its off-price rivals, and if cold weather strikes, the business faces a "significant opportunity" that could result in upside to management's 2-3 percent comp guidance, she said. 

Price Action

Shares of Burlington Stores were trading lower by 2.47 percent Wednesday afternoon. 

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Photo courtesy of Burlington Stores.