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Ross Expected to Have +20% Profit Growth the Next 4 Qtrs

Stock (Symbol)

Ross Stores (ROST)

Stock Price

$85

Sector
Retail & Travel
Data is as of
January 23, 2018
Expected to Report
Mar 6
Company Description
rossstores_storefrontRoss Stores operates two brands of off-price retail apparel and home fashion stores, Ross Dress for Less (Ross) and dd’s DISCOUNTS. The Ross and dd’s DISCOUNTS stores are supported by five distribution centers. The Ross brand stores offers its products at savings of 20% to 60% off department and specialty store regular prices every day. The dd’s DISCOUNTS stores offers its products at savings of 20% to 70% off moderate department and discount store regular prices every day. Source: Thomson Financial
Sharek’s Take
David SharekRoss Stores (ROST) is expected to have profit growth of more than 20% in each the next 4 qtrs, and that could fuel the stock to a 20% gain in 2018. Ross Stores is a discount clothing store that sells clothing and home goods at 20-60% off department store prices. The company began in 1982 in the San Francisco Bay area when 6 junior department stores were acquired and converted into Ross Dress for Less off-price stores. Ross went public in 1985 and as of fiscal year ending 2016 had 1342 Ross stores and 193 dd’s DISCOUNTS locations. Launched in 2004, dd’s DISCOUNTS targets younger households with more moderate incomes than Ross. ROST adds around 20 dd’s locations a year in addition to 70 Ross stores, and management feels it can almost double its total store count to 2500 someday. Significant growth opportunities lie ahead for both concepts as Ross is only in 34 states, with dd’s in just 15 states. Clothing just went from being a tough business a few months ago to one of the hottest sectors today as inventory levels are lower, thus there’s not a need to discount. Ross is a quality company, with little debt. Management spends hundreds of millions on stock buybacks and dividends each year. The stock has an Est. LTG of 10% a year in addition to a 1% yield, and possesses a P/E of 22. I feel ROST can earn a 26 P/E and my 2018 Fair Value of $101 is 20% higher than the recent quote. This stock is timely as it’s beaten the street and has had 2017 profit estimates increase in each of the last 4 qtrs.
One Year Chart
Profits increased 16% last qtr on a 8% increase in sales. Same store sales rose a respectable 4%. 2018 profit estimates surged this qtr, from $3.53 to $3.59. Looking ahead, analysts expect 21%, 24%, 26% and 24% profit growth the next 4 qtrs. And if ROST beats he street this company has an outside chance the company could profits an astounding 30%. Wow! 
Fair Value
Ross has sold for around 20x earnings the past few years, and now with profit growth expected to accelerate, I’m taking my Fair Value to a P/E of 26. This stock has very good upside this year and next.
Bottom Line
Ross Stores is a well oiled machine that grows its store base, increases same store sales at a modest rate, pays a dividend and buys back stock. That’s a great recipe for success. I love the ten-year chart, but am a bit concerned as the stock looks a bit extended here. With +20% profit growth on the horizon this stock is timely for the coming year. ROST ranks 5th in the Conservative Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

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