Ross Stores, Inc.

Earnings estimates continue to climb for Ross Stores, Inc. (ROST - Snapshot Report) as the company delivers month after month of strong same-store sales growth. It is a Zacks #2 Rank (Buy) stock.

Analysts expect this growth to continue. Based on consensus estimates, analysts project 16% EPS growth this year and 11% growth next year. On top of this, the company pays a dividend that currently yields 1.1%. Valuation is attractive too, with shares sporting a PEG ratio of 1.0.

Off-Price Retailers Still Thriving

Ross Stores is an off-price retailer offering name brand products at significant discounts to the competition.

It does so by taking advantage of overstocking and canceled orders at full-priced retailers. Ross Stores will buy this excess inventory at a steep discount and pass much of the savings on to its customers.

This business model was especially popular following the financial crisis as U.S. consumers struggled with high unemployment and falling home prices. With the economy continuing to sputter along, Ross Stores continues to benefit from cash-strapped consumers hunting for bargains. It posted a 4% increase in same-store sales for August, on top of a 5% increase in the same month last year.

The company operates 1,013 stores in 27 states and Guam. It has a market cap of $9.0 billion.

Second Quarter Results

Ross Stores reported strong second quarter results on August 18. Net sales increased 9% to $2.089 billion, edging out the Zacks Consensus Estimate of $2.075 billion. This marked the company's 4th consecutive positive sales surprise.

Same-store sales rose 5% on top of a 4% gain in 2010. Meanwhile, the operating margin expanded 55 basis points to 11.7% as the company leveraged its selling, general and administrative expenses.

Earnings per share came in at $1.28, in-line with the Zacks Consensus Estimate. It was a stellar 20% increase over the same quarter in 2010.

Strong Growth Ahead

Despite earnings coming in-line with the consensus estimate in Q2, analysts revised their estimates higher for both 2011 and 2012. This follows the trend over the last several months in which analysts have consistently raised their estimates for ROST:

It is a Zacks #2 Rank (Buy) stock.

The Zacks Consensus Estimate for 2011 is $5.39, at the high end of management's guidance. This represents 16% growth over 2010 EPS. The 2012 consensus estimate is currently 11% higher at $6.01.

Returning Value to Shareholders

Ross Stores has a solid balance sheet and generates strong cash flow. It has been using a nice chunk of this cash to return value to shareholders through stock buybacks and dividend hikes.

In the first six months of 2011, the company spent approximately $230 million buying back 3.1 million shares. It is on track to complete $450 million in repurchases this year, or half of its two-year $900 million stock repurchase authorization.

The company also pays a dividend that yields 1.1%. Since 2000, the company has raised its dividend at an average annual rate of 25%.

Valuation

The valuation picture looks very reasonable for ROST. Shares trade at just 13.7x 12-month forward earnings, a significant discount to the industry average of 17.0x, and a discount to its 10-year median of 14.9x.

Its PEG ratio is an attractive 1.0 based on a 5-year EPS growth rate of 13.9%.

The Bottom Line

U.S. consumers continue to find value at Ross Stores. Investors should too.

Read the May 27 article here.

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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.