MKM Calls Five Below 'Among The Best In Retail', Says Buy On Weakness

MKM Partners analyst Patrick McKeever is not worried about the soft outlook provided by Five Below Inc FIVE that dragged the stock down during after-hours trading Wednesday. Instead, the analyst advised investors to buy the stock taking advantage of the weakness.

The brokerage found the second quarter good, citing strong expansion of margin and 38 percent EPS growth. MKM said as long as most of the key metrics remained intact, it was not worried about the slightly-below-the-estimated comps nor the outlook calling for a slower growth pace.
The analyst believes Five Below is the best among the retail sector and expects merchandising and marketing catalysts to contribute to a solid performance in the rest of the year. McKeever maintains his Buy rating and the price target of $60.

Related Link: Five Below Reports 41st Consecutive Quarter Of Comps Growth; RBC Analysts Are "Aggressive Buyers"

"We believe Five Below is positioned to generate sustained annual EPS growth of close to 25 percent, driven by 20 percent footage growth, 95–100+ percent new store productivity, ~3 percent same-store sales and modest margin expansion. New stores should continue to generate a less than one year payback on the initial investment," the analyst told the clients in a research note.

The brokerage sees Five's licensed unit continuing its performance and expects widening of the assortment, which could have the potential to lift comp in the second half of the current year.

The stock lost $0.58, or 1.30 percent, to $43.98 at time of writing.

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