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Four Retail Stock Picks From UBS


Here's a look at how the stocks favored by UBS have fared and what analysts expect next.

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.

TJX Companies

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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