Editor's Note: This content was originally published on Benzinga.com by Nelson Hem.
A new report by analysts at UBS suggests there may be little upside ahead for department stores, due to such things as high inventories and unfavorable weather in the first quarter. However, they feel the prospects for some specialty retailers look more appealing.
Four of the stocks that made the UBS list of specialty retail stocks to buy are ANN
(NYSE:ANN), Foot Locker
(NYSE:FL), Ross Stores
(NASDAQ:ROST), and TJX Companies
(NYSE:TJX). My firm takes a glance at how these four stocks have fared and what analysts expect below.
The UBS report also recommended some apparel makers to buy: Nike
(NYSE:NKE), Ralph Lauren
(NYSE:RL), and VF Corp.
This retailer of women's wear and accessories lowered its first-quarter sales outlook last week, but investors were pleased by the outlook for May. Headquartered in New York City, ANN sports a market capitalization of about $1.4 billion but offers no dividend.
The price-to-earnings (P/E) ratio is lower than the industry average, and the long-term earnings per share (EPS) growth forecast is more than 11%. The operating margin is better than the industry average, and the return on equity is about 27%. Note that short interest is more than 8% of the float.
Only four of the 14 analysts surveyed by Thomson/First Call who follow this stock recommend buying shares. For the past three months, the consensus recommendation has been to hold shares. The mean price target, or where analysts expect the share price to go, indicates less than 10% potential upside. The UBS target is 22% higher than the current share price.
Shares of ANN are more than 15% higher than a year ago but down more than 5% year-to-date. Over the past six months, the stock has underperformed the broader markets and the other retailers featured here.
This retailer of athletic footwear and apparel said last week that it will buy the German shore store chain Runners Point, and this week it declared a quarterly dividend. Foot Locker offers a dividend yield near 2.2%, and its market cap is about $5.5 billion.
The long-term EPS growth forecast is about 11%, and the P/E ratio is less than the industry average. The operating margin is less than the industry average too, though the return on equity is more than 17%. Short interest is more than one percent of the float.
Of the 18 analysts surveyed, 12 recommend buying shares, with six of those rating the stock at Strong Buy. The mean price target implies more than 8% potential upside relative to the current share price. But note that the UBS target suggests only about 6% upside.
Shares are trading more than 15% higher than they were at the beginning of the year, including a rise of more than 9% in the past month. Over the past six months, this stock has outperformed the broader markets and competitor Finish Line
(NASDAQ:FINL). Ross Stores
This operator of off-price apparel and home fashion stores posted strong sales numbers for April and is expected to show revenue growth of about 7% in next week's first-quarter report. This Pleasanton, California-based retailer has a market cap of near $14.5 billion. The dividend yield is about 1%.
The P/E ratio is lower than the industry average and the long-term EPS growth forecast is about 12%. Ross Stores has a return on equity of more than 48% and the operating margin is greater than the industry average. The number of shares sold short represents about 1% of the company's float.
More than half of the 27 analysts polled recommend buying shares, while none rate the stock at Underperform or Sell. The analysts believe shares have little head room, as their price target is only about 2% higher than the current share price. But UBS sees about 12% potential upside.
The share price is up more than 21% year-to-date, though it has not yet recaptured the 52-week high from last August. The stock has narrowly outperformed peer TJX over the past six months, as well as the broader markets.
The operator of TJ Maxx, HomeGoods, and other chains is expected to post double-digit percentage EPS growth for the most recent quarter when it reports next week. The share price hit a multiyear high yesterday. The company has a more than $37 billion market cap and about a 1.1% dividend yield.
The P/E ratio is a lower than the industry average, and the long-term EPS growth forecast is more than 11%. The operating margin is greater than the industry average, and the return on equity is more than 55 percent. The short interest is less than 1% of the float.
Out of 27 surveyed analysts, 18 recommend buying shares, and none rates the stock at Underperform or Sell. The share price has overrun the mean price target, and the UBS target represents just 3% potential upside. Note though that a positive earnings surprise or rosy guidance next week could raise price targets.
Shares are trading almost 20% higher than at the beginning of the year. More than half of that gain has come in the past month. Over the past six months, the stock has outperformed Wal-Mart
(NYSE:WMT), but its performance has been in line with the broader markets.
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