"While Burlington's off-price evolution is in middle innings, we expect BURL can continue to narrow its margin gap to peers, particularly under the eye of a new CEO," analyst Kate Fitzsimmons wrote.
The shares "are expensive but rightly so, given BURL's productivity and margin runway."
Michael O'Sullivan took over as chief executive in September, coming over from Ross Stores (ROST) - Get Report . He succeeded Thomas Kingsbury, who stepped down after 10 year as head of the Burlington, N.J., company.
Over the next few years, RBC expects the company's margins to widen by 1 to 1 1/2 percentage points, to between 10% and 11%, thanks to "moderate merchandise margin improvements aided by better buying, use of packaway, and lean in-store inventories."
Packaway is a strategy by which a retailer buys manufacturers' overstocks, closeouts and canceled orders and stores them for sale later on.
RBC's price target gives Burlington a future earnings multiple of 28 times, above the multiple it places on rivals Ross Stores and TJX Cos. (TJX) - Get Report , which trade at 21 times and 23 times, respectively.
"Our outperform rating on BURL is hinged on the fact that the business can maintain a 2% to 3% comparative run rate as productivity improves, thanks to ongoing initiatives in merchandising (women's sportswear, home, footwear, and bath-and-body categories), selling and store experience (remodels, higher store wages), and marketing." Fitzsimmons wrote.
Burlington shares were little changed at $202.58 on Monday. The shares have risen 25% in 2019 through Friday.
Burlington Stores is a holding in Jim Cramer's Action Alerts PLUS charitable trust.