(By Balachander) Ross Stores Inc. (NASDAQ: ROST) shares were upgraded to "buy" from "hold" by Deutsche Bank (DB) based on four themes.
The bank, which maintained its $66 price target, said the upgrade is based on a flexible business model that should deliver better-than-expected sales and EPS growth in an uncertain environment.
DB also said comps should improve through the year as comparisons ease and the bank models 8 percent average annual square footage growth due to market share gain potential.
The bank also cited the upgrade to recent underperformance despite last week's pop, which leads to a compelling valuation.
ROST flexible inventory model, which includes an emphasis on pack-aways combined with inventory liquidity supports comp and margin visibility by enabling stores to constantly have strong merchandise sets at compelling prices, DB said.
The company has stores in only 30 states, with about half of its roughly 1,200 stores in California, Florida and Texas, making the chain one of the few regional, underpenetrated large cap retailers in the U.S., the bank wrote.
DB believes they should be able to double their store count over time as the off price model continues to gain market share.
The stock, which has been trading in the 52-week range of $50.01 to $70.82, inched up 0.14 percent to trade at $56.90 on Wednesday.