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Foot Locker and Other Specialty Retail Stocks Favored by UBS

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Foot Locker and Other Specialty Retail Stocks Favored by UBS

A new report by analysts at UBS (NYSE: UBS) suggests there may be little upside ahead for department stores, due to such things as high inventories and unfavorable weather in the first quarter. However, they feel the prospects for some specialty retailers look more appealing.

Four of the stocks that made the UBS list of specialty retail stocks to buy are ANN (NYSE: ANN), Foot Locker (NYSE: FL), Ross Stores (NASDAQ: ROST) and TJX Companies (NYSE: TJX). We take a glance at how these four stocks have fared and what analysts expect below.

The UBS report also recommended some apparel makers to buy: Nike (NYSE: NKE), Ralph Lauren (NYSE: RL) and V.F. Corp. (NYSE: VFC).

ANN

This retailer of women's wear and accessories lowered its first-quarter sales outlook last week, but investors were pleased by the outlook for May. Headquartered in New York City, ANN sports a market capitalization of about $1.4 billion but offers no dividend.

The price-to-earnings (P/E) ratio is lower than the industry average, and the long-term earnings per share (EPS) growth forecast is more than 11 percent. The operating margin is better than the industry average, and the return on equity is about 27 percent. Note that short interest is more than eight percent of the float.

Only four of the 14 analysts surveyed by Thomson/First Call who follow this stock recommend buying shares. For the past three months, the consensus recommendation has been to hold shares. The mean price target, or where analysts expect the share price to go, indicates less than 10 percent potential upside. The UBS target is 22 percent higher than the current share price.

Shares of ANN are more than 15 percent higher than a year ago but down more than five percent year-to-date. Over the past six months, the stock has underperformed the broader markets and the other retailers featured here.

Foot Locker

This retailer of athletic footwear and apparel said last week that it will buy the German shore store chain Runners Point, and this week it declared a quarterly dividend. Foot Locker offers a dividend yield near 2.2 percent, and its market cap is about $5.5 billion.

The long-term EPS growth forecast is about 11 percent, and the P/E ratio is less than the industry average. The operating margin is less than the industry average too, though the return on equity is more than 17 percent. Short interest is more than one percent of the float.

Of the 18 analysts surveyed, 12 recommend buying shares, with six of those rating the stock at Strong Buy. The mean price target implies more than eight percent potential upside relative to the current share price. But note that the UBS target suggests only about six percent upside.

Shares are trading more than 15 percent higher than they were at the beginning of the year, including a rise of more than nine percent in the past month. Over the past six months, this stock has outperformed the broader markets and competitor Finish Line (NYSE: FINL).

Ross Stores

This operator of off-price apparel and home fashion stores posted strong sales numbers for April and is expected to show revenue growth of about seven percent in next week's first-quarter report. This Pleasanton, California -based retailer has a market cap of near $14.5 billion. The dividend yield is about one percent.

The P/E ratio is lower than the industry average and the long-term EPS growth forecast is about 12 percent. Ross Stores has a return on equity of more than 48 percent and the operating margin is greater than the industry average. The number of shares sold short represents about one percent of the company's float.

More than half of the 27 analysts polled recommend buying shares, while none rate the stock at Underperform or Sell. The analysts believe shares have little head room, as their price target is only about two percent higher than the current share price. But UBS sees about 12 percent potential upside.

The share price is up more than 21 percent year-to-date, though it has not yet recaptured the 52-week high from last August. The stock has narrowly outperformed peer TJX over the past six months, as well as the broader markets.

TJX Companies

The operator of the T.J. Maxx, HomeGoods and other chains is expected to post double-digit percentage EPS growth for the most recent quarter when it reports next week. The share price hit a multiyear high yesterday. The company has a more than $37 billion market cap and about a 1.1 percent dividend yield.

The P/E ratio is a lower than the industry average, and the long-term EPS growth forecast is more than 11 percent. The operating margin is greater than the industry average, and the return on equity is more than 55 percent. The short interest is less than one percent of the float.

Out of 27 surveyed analysts, 18 recommend buying shares, and none rates the stock at Underperform or Sell. The share price has overrun the mean price target, and the UBS target represents just three percent potential upside. Note though that a positive earnings surprise or rosy guidance next week could raise price targets.

Shares are trading almost 20 percent higher than at the beginning of the year. More than half of that gain has come in the past month. Over the past six months, the stock has outperformed Wal-Mart (NYSE: WMT), but its performance has been in line with the broader markets.

Posted-In: ann finish line foot locker Nike Ralph Lauren. V.F. Corp.Long Ideas Short Ideas Trading Ideas Best of Benzinga

 

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