Analysts defend bullish outlook on Ross Stores after post-earnings plunge
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Despite a deep dive for shares, after earnings many on Wall Street are not stepping away from âBuyâ ratings on Ross Stores (NASDAQ:ROST).
Shares of the Dublin, California-based discount retailer cratered in Friday's pre-market hours, falling by as much as 27% after offering an inauspicious first quarter earnings report on Thursday evening. The company noted significant deceleration in comparable store sales, pressured margins, and ballooning inventory in the quarter, prompting significant cuts to guidance as problems persist.
Nonetheless, both Bank of America and Morgan Stanley retail analysts reiterated their long-term bullishness on the stock.
âThe sales miss was disappointing versus TJX Companies (TJX), but we still view Ross Stores (ROST) as well positioned to benefit from trade-down and gain market share as consumers seek value in the coming quarters,â Bank of America analyst Lorraine Hutchinson wrote to clients. âWe see room for earnings improvement on stronger sales and [gross margin], particularly in [the second half of 2022] as the company laps outsized freight headwinds and assortment gaps.â
She added that the companyâs historically strong performance in periods of economic turmoil bolsters her confidence. While Hutchinson cut her price target from $125 to $110, she reiterated a âBuyâ rating on shares.
Her optimism amidst the adverse earnings report was shared by Morgan Stanley analyst Kimberly Greenberger.
âAll in, against the miss & guide lower, investors will want evidence of performance inflection before revisiting the ROST story,â Greenberger said. âEven so, we think longer-term oriented investors should take another look.â
She explained that economic downturns are typically the best periods for Ross Stores (ROST) to acquire new customers, providing a paradoxical catalyst for shares. While Greenberger admitted it may take time for these trends to manifest themselves in positive sales trends for Ross, it should show up before the year's end. Until that point, however, sentiment is likely to remain largely negative on the stock.
As such, Greenberger advised investors to monitor sales trends and sentiment as an inflection point is on the way, in her view. She reiterated her âOutperformâ rating on shares, while likewise trimming her price target from $139 to $129. 
The stock hovered around $70 about one hour prior to Fridayâs market open.
Read a more pessimistic report from UBS offered ahead of earnings.