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Five Below: Morgan Stanley Upgraded the Stock

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Rating upgrade

On January 7, Morgan Stanley upgraded Five Below (FIVE) to “overweight” from “equal weight.” The target price is $118.00—up from $113.00 projected earlier. Five Below stock rose 7.1% in the last trading session and closed trading at $115.58. So far in January, the stock has gained 13%.

As of January 7, among the 18 analysts covering Five Below stock, ~78% recommended a “buy,” while 22% recommended a “hold.” Analysts’ 12-month average target price for Five Below stock is $127.94, which reflects a 10.7% upside based on its stock price on January 7.

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Will Five Below’s good run continue in 2019?

Five Below is on a store expansion drive, which is increasing its sales. In 2018, the company opened 125 net new stores including its first store in Manhattan on Fifth Avenue. The company expects to open 2,500 stores across the US in the long term. Five Below is also investing in marketing, especially digital like social media and TV.

Five Below thinks that the dissolution of Toys “R” Us as an opportunity to boost its sales. The company is working on a bigger merchandise assortment to increase its presence in the toy market.

Five Below is a discount retailer. The company’s compelling pricing is its biggest strength. Recently, Five Below launched the “Ten Below or Just Wow” concept in six stores. The company unveiled a merchandise collection with a price tag of up to $10.

Five Below is working with suppliers to keep costs under control due to the US-China tariff war. The company is looking to procure goods from countries other than China. Five Below is also exploring select price increases if necessary.

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