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Analyst Blog

We have initiated coverage on Ross Stores Inc. (ROST - Analyst Report) with a Neutral recommendation and a target price of $74 per share.

Why Neutral?

We are impressed by Ross Stores’ off-price business model that offers strong value proposition to its target customers. The company’s compelling business model has worked well as the competitive bargains it offers continue to make its stores an attractive destination for customers in all economic scenarios.  We believe this will help sustain the company’s top- and bottom-line growth trends.

We believe the company’s ongoing merchandise initiatives and inventory management bode well for future growth. A key ingredient of the company’s strategies to keep itself on the growth trajectory is continued focus on merchandising organization through investments in workforce, processes and technology. The company continually fine-tunes and upgrades its systems and processes to enhance productivity.

We applaud Ross Store’s ability to run the business with leaner inventory levels and faster inventory turnover. Lower inventory should help support Ross Stores’ strong merchandise margins and ability to continue to capitalize on in-season inventory buying opportunities in the marketplace to ensure a current assortment and better brand content.

Moreover, its focus on store expansion, along with consistent share buybacks and attractive dividend payouts highlight its financial strength.

However, we are disappointed by the company’s dismal third-quarter fiscal 2013 performance and conservative outlook. This has triggered a downward trend in the Zacks Consensus Estimate for the fourth quarter and fiscal 2013, as analysts became less constructive on the stock’s future performance.

Further, the stock remains sensitive to the slow economic recovery, intense competition and exposure to seasonal fluctuations.

Other Stocks to Consider

Ross Stores currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the retail space include Christopher & Banks Corporation (CBK - Snapshot Report), Barnes & Noble Inc. (BKS - Snapshot Report) and G-III Apparel Group Ltd. (GIII - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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