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A UBS analyst maintained a Neutral rating and $85 per share price target on Ross Stores (NASDAQ:ROST) Monday, telling investors in a research note that they expect a positive stock catalyst.
“We think ROST’s 2Q report catalyzes P/E expansion: We expect ROST lowers its FY22 EPS guidance. However, our conversations with investors suggest they expect the same. Thus, we think a guidedown will have 2 important consequences,” said the analyst. “1) It likely causes investors to view ROST’s FY22 outlook as “de-risked.” 2) A guidedown likely leads to the market seeing an inflection point in ROST’s fundamental trends.”
The analyst believes the market could view Q2 as “the bottom” due to the benefits of better inventory availability and falling inflation rates leading to a better performance in the second half of the year.
“We think these two dynamics cause ROST’s P/E to expand over the event. The risk is ROST’s FY22 guidance update disappoints even lowered market expectations. However, we think the probability of a less-bad-than-feared guide is higher than the chance of a disappointing guide.”
