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Where Does Ross Stores’ Valuation Stand after Fiscal 4Q17?

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ROST’s 12-month forward PE

On March 8, 2018, Ross Stores (ROST) was trading at a 12-month forward PE (price-to-earnings) multiple of 18.4x. The company’s forward valuation multiple fell 8.4% on March 7 in reaction to its cautious outlook for fiscal 2018.

Ross Stores announced strong fiscal 4Q17 results after the market closed on March 6, 2018, but a highly competitive retail market made the company issue a conservative outlook for fiscal 2018.

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Peer comparison

Ross Stores’ valuation multiple is currently lower than those of its peers in the off-price space. On March 8, TJX Companies (TJX) and Burlington Stores (BURL) were trading at 12-month forward PEs of 21.8x and 21.7x, respectively. In comparison, the S&P 500 Index was trading at a forward PE of 18.1x.

The 12-month forward PE varies among companies in the same sector based on several factors, including growth expectations and risk-return profile.

Analysts’ growth expectations

Analysts expect Ross Stores’ sales to rise 4.4% to $14.8 billion in fiscal 2018, which will end on February 2, 2019. The company’s adjusted EPS (earnings per share) are expected to come in at $4.06 in fiscal 2018. Excluding the impact of the 53rd additional week in fiscal 2017, Ross Stores’ adjusted EPS were $3.24 in the year.

Higher sales and lower taxes are expected to drive Ross Stores’ earnings in fiscal 2018. However, the company has announced its plan to raise its minimum wage to $11 per hour. Its increased investment in its employees and the highly promotional retail market environment are likely to put pressure on its bottom line.

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