Ross Stores stock rallied on Monday after receiving a price-target hike from Credit Suisse. The report named the stock the brokerage's top pick in off-price retail as more customers seek bargains amid rising prices.
Credit Suisse analyst Michael Binetti, in a research note dated Sunday, raised the price target on Ross Stores to $125 from $118.
Ross Stores stock jumped 3.4% to 100.11 in the stock market today. The stock in recent days has built off support at its 50-day line. Gap also rallied, up 2.8% to 13.68.
Ross, a discount clothing and home-goods chain, "sounded the most optimistic we've heard in years," Credit Suisse said, and noted the company's more bullish sales and margin outlook for the year ahead.
'Gaining Share' On 'Trading Down'
Concerns have grown that rising prices will eat into consumer spending, as supply-chain backups and Russia's invasion of Ukraine push food and energy costs higher. But the Ross executives see their stores' more affordable offerings resonating with customers.
"High savings rates and wage growth in lower-income industries seemed to support ROST's confidence in consumer spending," Credit Suisse said in the note about Ross Stores stock.
"Importantly, while Macy's recently pointed to some volatility from the middle/lower income consumer at its stores, ROST seemed to suggest it was already seeing signs of gaining share from consumers trading down to value retail chains."
That sentiment arrives as Ross Stores stock faces some tough year-over year comparisons following a strong 2021. Last year, the chain benefited from Covid-related stimulus and the broader reopening of the economy.
Executives at Ross noted stronger sales at stores in tourist destinations and in towns where more people are returning to the office, according to the note.
As with others, Ross has been dealing with higher freight costs, after the pandemic put more pressure on the world's supply chains last year. But management indicated those stresses had eased.
Credit Suisse also said Ross had managed its inventories effectively heading into the spring season, as more people travel and work and gather outside of their homes.
Meanwhile, some department stores and specialty retailers had overloaded those stockpiles following strong demand last year, the analysts said. Ross executives said it had seen "promotions across the space returning very aggressively in recent weeks."
Ross Stores Stock Ratings, Earnings
The company in March reported earnings per share and revenue that beat expectations. But same-store sales missed estimates. Ross at that time announced a two-year, $1.9 billion share buyback program and raised its quarterly cash dividend.
Ross Stores at the time forecast same-store sales for the fiscal year ahead to be flat to up 3%. The company forecast full-year earnings per share of $4.71 to $5.12. Wall Street expects earnings of $5.04 per share and a 2.1% same-store-sales gain.
Ross Stores stock has a 57 Composite Rating. Its EPS Rating is 64.
During the chain's most recent earnings call, in March, the CEO said that during the holidays the best performing bigger-merchandise segments were the children's and men's categories, particularly among customers in the Midwest and Southeast.
Macy's added 3.7% Monday afternoon. Gap rose 3%.
