Mizuho Securities has raised its rating on discount retailer Five Below (NASDAQ: FIVE) from Neutral to Outperform, setting a price target of $220, arguing the stock's recent pullback of nearly 30% is excessive.
The firm's analysts noted the stock's significant decline of almost 30% from recent highs, which occurred while the S&P 500 index rose, creating a notable valuation disconnect. They view Five Below's strong customer retention as a key driver for potential second-half outperformance and anticipate a meaningful expansion in the company's EBIT margin.
This upgrade follows the company's strong first-quarter financial results. According to its earnings report, revenue surged 32.5% year-over-year to $1.29 billion, surpassing market expectations of $1.23 billion. Adjusted earnings per share reached $2.22, also significantly higher than the analyst consensus of $1.77. Comparable sales for the quarter soared by 22.7%. Despite the robust performance, the stock fell more than 12% post-earnings due to concerns about second-half consumer confidence and tariff impacts.
Based on company guidance, revenue for the second quarter of fiscal 2026 is projected to be between $1.18 billion and $1.20 billion, with comparable sales expected to grow 7% to 9%. Mizuho expressed greater confidence in management's execution strategy, suggesting market fears regarding tariffs and consumer weakness are overblown.
Bolstered by Mizuho's upgrade and the analysts' bullish rationale, shares of Five Below rose more than 2.6% in pre-market trading on July 9. The stock had previously closed at $180.75 on July 8, gaining 2.55% for the day.
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