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Which Off-Price Retailers’ Stock Has Higher Return Potential?

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Analyst recommendations

As of October 4, 77% of analysts, or 24 out of 31, had a “buy” recommendation for TJX Companies (TJX) and 23% of analysts had a “hold” recommendation. None of the analysts had a “sell” rating. For Ross Stores (ROST), 57%, or 17 out of 30 analysts, had a “buy” recommendation, 40% gave a “hold” rating, and 3% gave a “sell” recommendation. As of October 4, 73%, or 11 out of 15 analysts, had a “buy” recommendation for Burlington Stores’ (BURL) stock, and 27% had a “hold” recommendation. None of the analysts had a “sell” recommendation.

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The “buy” recommendation by most of the analysts for off-price retailers is supported by their consistent performance. The off-price business model has worked well even during uncertain economic times. Consumers continue to look for deals from off-price retailers. Off-price retailers offer their merchandise at a 20%–80% discount compared to similar merchandise in department stores.

Also, established off-price retailers like TJX Companies have a competitive advantage in terms of extensive store network, low-cost structure, and a strong vendor universe comprising over 18,000 vendors in more than 100 countries.

12-month price target

As of October 4, the 12-month price targets for TJX Companies, Ross Stores, and Burlington Stores were $84.67, $66.25, and $89.33, respectively. These price targets reflect a return potential of 13.8%, 3.1%, and 12.9%, for TJX Companies, Ross Stores, and Burlington Stores, respectively.

As discussed in part one of this series, the stock prices of TJX Companies, Ross Stores, and Burlington Stores have risen 5%, 18.2%, and 83%, respectively, on a YTD basis. These three off-price retailers together account for 3.6% of the SPDR S&P Retail ETF (XRT). The XRT ETF has risen 1% on a YTD basis.

We’ll discuss the valuations of off-price retailers in the concluding part of this series.

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