Is The Price Right To Buy These 3 Discount Retail Stocks?

In the off-price retailers sector, the Buckingham Research Group assumed coverage of Burlington Stores Inc BURL with a Buy rating and a $107 price target, TJX Companies Inc TJX with a Buy rating and a $85 price target and Ross Stores, Inc. ROST with a Neutral rating and a price target of $71.

Analyst Eric Tracy said the off-price retailers are well positioned to continue to benefit from the department stores and specialty stores rationalization. Their differentiated off-price model is going to prevent Amazon from entering the sector. They have an opportunity to exploit increasingly available real estate and there is increased availability and liquidity of quality products.

The risks for the off-price industry, according to Tracy, are over-saturation of the off-price model, risk of brands moving away from the off-price sector and multiple compression, which is the greatest risk in the near term. The analyst thinks Burlington Stores, TJX Companies and Ross Stores have a potential of sustaining higher comparable same store sales, while Burlington Stores and TJX Companies are in a better position to grow.

TJX Companies and Ross Store could face some margin pressure, while Burlington Stores is well positioned to grow margins, said Tracy. The off-price retailers should continue to generate solid free cash flow and are going to have balanced capital investment. The sector has better return on invested capital than the most in the retail and consumer industry.

The off-price sector has a good risk-reward, said Tracy. His top pick in the space is Burlington Stores, because it has the most potential for EPS and comparable same-store sales growth.

Related Link: Retail Analyst Shares His Department And Specialty Picks