By Teresa Rivas
Burlington Stores stock is the best-performing off-price retailer this year so far. At least one analyst thinks it can repeat that feat again in 2025, as consumers are still keen to prioritize value.
Shares of Burlington have gained 50% to roughly $295 in 2024, comfortably outpacing industry leader TJX's 36% rise and Ross Stores' 12% gain.
Burlington is the smallest of the three and has had plenty of growing pains. It's the only stock in the group that hasn't retaken its 2021 highs. The company has struggled to right-size its inventory and its typically lower-income shoppers were hit by inflation harder than most.
Shares have made impressive strides lately, as evidenced by strong earnings results. The company is taking full advantage of the current environment. Inflation's pace may be slowing, but with the cost of living still significantly higher than it was just a few years ago, plenty of shoppers are still dedicated to bargain hunting.
That backdrop should continue, says TD Cowen analyst John Kernan. On Thursday, he reiterated a Buy rating on Burlington while raising his price target by $5 to $339. He calls the stock one of his best ideas for the year ahead, as it has "opportunities in merchandising, enhanced store productivity, supply chain, automation, and warehousing" that will allow it to keep beating earnings per share expectations and deliver an EPS compound annual growth rate of 20% over the next three to five years.
Kernan says that Burlington, like its peers, will benefit from its core lower- and middle-income consumers still prioritizing value. Yet -- as this year's stock performance shows -- the company is doing more than just riding the wave.
He cites the company's improving same-store sales and free cash flow growth near the top of the sector. The company is opening new locations at a rapid clip while shuttering underperforming stores. Fewer markdowns are helping margins, too. Recent investments in its supply chain should start paying dividends.
In addition, "the quality of Burlington's inventory buying, new store prototype and improved in-store execution is notable," Kernan writes. That leads him to believe that Burlington will be able to achieve $1 billion in annualized free cash flow by fiscal 2028.
Wall Street mostly agrees: 91% of the analysts tracked by FactSet have a Buy rating or the equivalent on shares, with the two holdouts rating it at Hold; there are no bearish calls. The average analyst price target of $327 implies some 11% upside from current levels. Consensus calls for earnings per share to jump by 30% this fiscal year and by 19% in the next.
Moreover, while the shares trade at 32 times forward earnings, that's actually below their five-year average of 33 times. TJX changes hands at 28 times. As Barron's argued last month, it's worth paying up for TJX given its strong reputation for value and the growth of the overall off-price sector.
This year looks like another record-breaker for holiday sales, and Burlington is poised to be one of the beneficiaries in the fourth quarter and beyond.
Sometimes even Santa is on a budget.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 12, 2024 14:37 ET (19:37 GMT)
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