Morgan Stanley Bullish On Five Below's Long-Term Store Growth Trajectory

Five Below Inc FIVE's rapid ascension does not appear to be slowing down anytime soon, according to Morgan Stanley. 

The Analyst 

Morgan Stanley analyst Vincent Sinisi reiterated an Equal-weight on Five Below and raised the price target from $78 to $94.

The Thesis

Discount retail continues to be one of the brightest spots in the sector. Five Below's performance is a prime example, with shares up over 46 percent year-to-date. (See the analyst's track record here.) 

A sustained period of productive store growth and consistently strong operating results gives Sinisi increased confidence in Five Below's robust growth trajectory, the analyst said. 

Morgan Stanley increased its long-term store growth forecast from 2,000 to 2,500 by 2035.

Five Below’s first quarter was its most productive as a public company, and the company continues to be among the best in new store productivity among Morgan Stanley’s coverage, the analyst said. 

A new Five Below store costs $300,000 but generates an EBITDA of $450,000 on average in the first year, Sinisi said. The analyst forecast 90-percent long-term new store productivity.

The company also seems to be shaking its gimmick-driven retail perception.

“With no clear trend established in 2018, we think a strong, widespread merchandising assortment can smooth comp performance and shift the perception of FIVE from a fad-driven retailer to a more consistent comp story, especially as brand awareness efforts continue to gain traction," Sinisi said. 

Price Action

Five Below shares were trading down 0.87 percent before the close Wednesday at $97.73. 

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