UBS maintains neutral rating on Ross Stores stock amid growth outlook

UBS reiterated its Neutral rating for Ross Stores (ROST) with a $144 price target, citing a balanced outlook due to potential upside from improved credit card data offset by tariff risks. While Ross Stores reported strong Q1 results, exceeding EPS and revenue forecasts, it withdrew annual guidance due to macroeconomic uncertainties, particularly tariff impacts. Analysts at Evercore ISI and TD Cowen adjusted price targets downward, while Jefferies lowered its target to $135 due to concerns over the company's reliance on Chinese imports.

Analysis

UBS analysts have reiterated a Neutral rating for Ross Stores, Inc. (ROST) with a $144.00 price target, anticipating the company will outperform department store peers with an estimated 4.5% compound annual growth rate in earnings per share over five years, supporting a price-to-earnings ratio of around 21 times. Currently, ROST trades at a P/E of 22.2x, which InvestingPro notes as potentially high relative to near-term earnings growth, though UBS expects popularity to maintain the fiscal year one P/E at 23 times. Despite a strong first-quarter performance, where EPS reached $1.47 (exceeding the $1.43 forecast) and revenue hit $5 billion (surpassing the $4.94 billion estimate), Ross Stores withdrew its annual guidance due to macroeconomic uncertainties, notably the potential impact of tariffs on merchandise margins, as over 50% of its inventory is sourced from China. This cautious outlook is reflected in its second-quarter EPS forecast of $1.40-$1.55 and flat to 3% comparable store sales growth. The company's strong financial health, indicated by a perfect Piotroski Score of 9, is tempered by these external pressures. Consequently, other analysts have adjusted their price targets: Evercore ISI to $160 and TD Cowen to $161 (both maintaining positive ratings), while Jefferies lowered its target to $135 due to concerns over Chinese import reliance, and Bernstein maintained a Market Perform rating with a $147 target, citing tariff exposure as a headwind. UBS views the upside from potential credit card data improvements and downside from tariff risks as balanced.

Key Decisions for Investors

• Investors should adopt a cautious stance, consistent with UBS's Neutral rating, carefully weighing Ross Stores' robust Q1 earnings and strong financial health (Piotroski score of 9) against significant tariff-related uncertainties and the company's withdrawn annual guidance.
• Closely monitor developments in U.S.-China trade relations and their potential impact on merchandise margins, given that over 50% of Ross Stores' inventory is sourced from China, a critical risk factor highlighted by multiple analysts.
• Evaluate the current P/E ratio of 22.2x against the modest ~4.5% five-year EPS CAGR projected by UBS and the cautious Q2 guidance (flat to 3% comparable store sales growth), considering the potential for P/E contraction if tariff risks materialize.
• Factor in the range of analyst price targets ($135-$161) and the rationale behind them, particularly concerns regarding tariff exposure and import reliance, when assessing the stock's risk/reward profile.