UBS Upgrades Burlington, Says Tariffs Likely 'Net Positive'

Burlington Stores Inc BURL is poised to benefit from the impact of tariffs on full-price retails as well as the trend reversal between off-price retailers and department stores that took place in the second quarter, according to UBS.

The Analyst

UBS analyst Jay Sole upgraded Burlington Stores from Sell to Neutral, while raising the price target from $121 to $200.

The Thesis

Tariffs seem to be resulting in significant order cancellations among many full-price retailers, presenting Burlington Stores with the opportunity to buy inventory at very low costs, Sole said in the upgrade note.

He added that tariffs also seem to be causing store closures among weaker retailers, with Softline industry store closures already reaching at a record high so far in 2019.

Although tariffs could exert pressure on Burlington Stores’ fiscal 2020 gross margins, this is unlikely to result in any big EPS miss, Sole mentioned, while stating that tariffs are likely to be a “net positive” for the company.

Burlington Stores and other off-price retailers had recorded accelerating market share gains versus department stores in the second quarter, reversing a trend that had persisted for over a year, the analyst wrote. He added that the company is likely to continue gaining market share and generate double digit EPS growth in fiscal 2019 and 2020.

Price Action

Shares of Burlington Stores were up 2.5% to $197.03 at the time of publishing on Tuesday.

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