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How Ross Stores’ Valuations Compare to Peers

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12-month forward PE

As of July 31, Ross Stores (ROST) was trading at a 12-month forward PE (price-to-earnings) ratio of 21.0x. The company’s valuation multiple has risen 5.0% since the announcement of the company’s fiscal first-quarter results in May. As discussed in part three of this series, Ross Stores raised its EPS (earnings per share) guidance for fiscal 2018.

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Peer valuations

As of July 31, Ross Stores’ forward PE was higher than TJX Companies’ (TJX) forward PE ratio of 19.6x. However, Burlington Stores (BURL) was trading at a higher forward PE of 24.9x. Burlington Stores’ premium valuation compared to its larger off-price peers is backed by higher growth expectations.

As of July 31, the S&P 500 Index was trading at a lower forward valuation multiple of 17.1x compared to that of Ross Stores.

Analysts’ growth expectations

Currently, analysts expect Ross Stores’ sales to grow about 5% to $14.8 billion in fiscal 2018. Excluding one-time items, analysts expect Ross Stores’ adjusted EPS to rise 22.2% to $4.08 in fiscal 2018. Higher sales, the benefit of lower taxes, and the company’s share buybacks are expected to drive the company’s bottom-line growth in fiscal 2018.

Analysts expect the adjusted EPS of TJX Companies and Burlington Stores to grow 22.6% and 38.2%, respectively, in the current fiscal year. Ross Stores’ flexible off-price model has proven itself even in challenging retail and macroeconomic conditions. The company’s strengths include efficient inventory management, tight control over expenses, a wide store network, and strong vendor relationships. The company intends to expand further in the existing markets and newer markets like the Midwest.

In March 2018, the company raised its quarterly dividend by 41% to about $0.23 per share. This marked the 24th consecutive year in which the company increased its dividend.

The company’s goal to increase its store network to 2,500 over the long term could further strengthen its position in the off-price retail space.

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