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Bull of the Day: Burlington Stores, Inc. (BURL)

Benjamin Rains

Shares of Burlington Stores (BURL) have surged over 12% since the company posted stronger-than-projected second-quarter results and raised its outlook. Now, with the holiday shopping season upon us, let’s dive into why this off-price retailer’s stock looks like a solid buy right now.

Burlington’s Pitch

Burlington operates a straight forward business model. The New Jersey-headquarter firm runs nearly 700 stores, mostly in the U.S., and has worked to remodel and revamp many of these locations in recent years. Burlington has tried to roll out smaller stores as well, as part of an effort to improve the shopping experience and increase store productivity.

Investors should note that BURL went public for the second time in its history in 2013 at just $17 per share. The firm soon rebranded from Burlington Coat Factory to its current Burlington Stores in order to better communicate to shoppers that it sold far more than coats. Today, the company sells everything from home décor and toys to men’s shoes and women’s activewear and is one of the larger and more successful discount-style department stores in the country.

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Burlington’s strong run of success over the last five years stands in contrast to rivals such as Kohl’s (KSS) and makes Macy’s (M), Nordstrom (JWN), and JC Penney’s (JCP) downturns that much harder for many retail and department store investors to swallow. The higher-end department stores have struggled to adapt in an Amazon-driven retail age, while some off-price retailers from Dollar Tree (DLTR) to Ross Stores (ROST) have found success.

 

 

 

 

Price Movement

BURL stock has been on a tear since going public again in October 2013. Burlington stock is up over 615% since then, against the S&P 500’s 77% jump, and its industry’s 130%. The off-price retailer’s shares have also climbed 120% in the last two years.

With that said, BURL stock has cooled off a bit recently, up just 11% in the last 12 months, compared to its industry’s 24% jump and S&P’s 13% expansion. As we mentioned at the top, Burlington shares have popped over 12% since it posted its Q2 financial results at the end of August. Yet, BURL stock has dipped 2.5% in the last month.

The stock closed regular trading Tuesday at $193.93 per share, down more than 7% off its 52-week highs. Plus, for those who pay attention to more technical metrics, BURL stock just dipped slightly below its 50-day moving average, which it has rarely stayed below for long over the last three years.

Other Fundamentals

Aside from Burlington’s individual strength, the Retail - Discount Stores industry currently rests in the top 11% of our 255 Zacks Industries. This is a good sign as consumers head into the holiday shopping period, with U.S. unemployment at 50-year lows. And the National Retail Federation expects U.S. holiday shopping sales to climb between 3.8% and 4.2% to reach roughly $730 billion.

This would compare favorably to the 3.7% average over the last five years and top 2018’s disappointing 2.1%. “Consumers are in good financial shape and willing to spend a little more on gifts for the special people in their lives this holiday season,” NRF President CEO Matthew Shay said in prepared remarks.

On top of that, we can see that BURL’s valuation picture has not grown too stretched despite its outsized growth. The stock is trading not that far above its own three-year median of 23.2X forward 12-months Zacks Consensus Estimates and its industry’s average at 24.5X.

 

 

 

 

Q3 Outlook & Beyond

Last quarter, Burlington’s revenue jumped 10.5%, with comparable sales up 3.8%. Our current Zacks Consensus Estimates call for the company’s third-quarter revenue to pop 9.8% to reach $1.79 billion, which would come on top of the year-ago period’s 13.6% sales growth.

Meanwhile, comp sales are expected to jump 2.9% in Q3 2019. This would mark the continuation of strong same-store sales growth after the vital retail metric surged 4.4% in the third quarter of 2018.

Looking further ahead, the company’s Q4 sales are projected jump to 10.6% to help lift full-year sales by 9.4% to hit $7.26 billion. The retailer’s fiscal 2020 revenues are then expected to climb 9% higher to reach $7.91 billion.

At the bottom end of the income statement, the company’s adjusted quarterly earnings are projected to climb 16.5% from the prior-year quarter to come in at $1.41 per share. This would nearly match last quarter’s 18% earnings growth, which easily topped our estimate.

Burlington’s full-year fiscal 2019 EPS figure is then projected to climb over 12%, with FY20 expected to come in 13.5% above our current-year estimate. The company also has a solid history of quarterly earnings beats and has seen its Q3 and longer-term earnings estimates move heavily upward over the last 90 days.

 

 

 

 

Bottom Line

Burlington’s positive earnings revision activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment. The company also sports an “A” grade for Growth in our Style Scores system. The company is expected to release its Q3 financial results on November 27, based on our Zacks Earnings Calendar, after industry giants such as Walmart (WMT) and Target (TGT).

Clearly, Burlington appears to be worth considering at the moment and it has some room to run. We should note, however, that the stock has traded pretty heavily around earnings recently.

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Walmart Inc. (WMT) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
Ross Stores, Inc. (ROST) : Free Stock Analysis Report
 
Macy's, Inc. (M) : Free Stock Analysis Report
 
Kohl's Corporation (KSS) : Free Stock Analysis Report
 
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
 
J. C. Penney Company, Inc. (JCP) : Free Stock Analysis Report
 
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL) : Free Stock Analysis Report
 
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