Ross Stores stock target cut to $150 by Telsey on sales concerns

On Wednesday, Telsey Advisory Group adjusted its outlook on Ross Stores, Inc. (NASDAQ: ROST), reducing the price target to $150 from the previous $175 while sustaining a Market Perform rating on the shares. The firm’s analyst cited a combination of factors influencing the decision, including sales and gross margin figures that fell short of expectations, although this was partly mitigated by better-than-anticipated expense management, leading to an unexpected operating margin benefit. According to InvestingPro data, Ross Stores maintains a strong financial position with a healthy gross profit margin of 32.6% and trades at $135.97, near its 52-week low of $127.53.

Ross Stores ended the fiscal year 2024 with results that were a mixed blessing. The company experienced robust growth in comparable store sales due to increases in both customer traffic and average basket size, suggesting that consumers continue to value the brand’s offerings. Despite recent challenges, InvestingPro analysis shows the company achieved impressive revenue growth of 8.54% over the last twelve months, with total revenue reaching $21.2 billion. However, sales momentum waned towards the end of the quarter, a trend that has persisted into the early first quarter of 2025. This slowdown has been attributed to unseasonably warm weather and an uncertain macroeconomic climate.

The conservative forecast presented by the company for both the first quarter of 2025 and the full fiscal year reflects ongoing trends and acknowledges the difficult and unpredictable macro-operating and geopolitical environment. Telsey’s analysis points to the possibility that Ross Stores’ core customer base, primarily consisting of lower-to-middle income consumers, might be feeling the pinch due to recent policy shifts that have negatively impacted consumer confidence and spending. Nevertheless, InvestingPro data reveals the company’s resilient financial health with a strong current ratio of 1.57 and consistent dividend payments maintained for 31 consecutive years, demonstrating its ability to navigate challenging market conditions.

In light of these observations and revised earnings estimates, Telsey has set a new price target based on a 21.1 times multiple applied to a two-year forward earnings per share (EPS) estimate of $7.12. This valuation is consistent with the stock’s recent average next twelve months (NTM) earnings multiple. The current P/E ratio stands at 21.52x, with the company maintaining a solid return on equity of 43%. Despite the price target reduction, Telsey continues to recognize the potential for Ross Stores to attract value-seeking customers, especially in the current economic landscape.

In other recent news, Ross Stores Inc (NASDAQ:ROST). reported its fourth-quarter 2024 earnings, revealing an earnings per share (EPS) of $1.79, surpassing the expected $1.65. However, the company fell slightly short on revenue, reporting $5.91 billion against an anticipated $5.94 billion. For the full year, sales increased by 3.4% year-over-year to $21.1 billion, with net income rising by 10.5% to $2.1 billion. Despite these results, several analysts have adjusted their price targets for Ross Stores. Jefferies lowered its target to $145 while maintaining a neutral stance, citing concerns over future performance despite strong fourth-quarter sales. BMO Capital Markets also reduced its price target to $156 but kept an Outperform rating, highlighting a significant reduction in operating expenses. Citi adjusted its price target to $146, maintaining a neutral rating, and noted a slowdown in sales trends at the beginning of the year. Ross Stores’ management has projected a conservative outlook for the upcoming quarters, with expected comparable store sales growth ranging from -1% to +2% and EPS between $5.95 and $6.55 for fiscal 2025.

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