Burlington Stores Is Not Cheap, but Offers Tons on Value Ahead of Earnings

NEW YORK (TheStreet) -- You don't have to look hard to find a cheap retail stock these days. With the SPDR S&P Retail ETF (XRT) down as much as 5% in three months, owed to April's tepid consumer sales report, investors have plenty of retail options to choose from.

But one name you won't find in the discount bin is Burlington Stores (BURL), an off-price retailer that continues to buck the trend of retail underperformance. BURL shares are up more than 15% so far in 2015, dominating the 4% gains in the XRT. And not only does BURL stock trade at a P/E of 62, three times the S&P 500, shares of the Burlington, N.J.-based company are also valued at more than three times the XRT, which has a P/E of 20.

Still, unlike BURL, the average retailer in the XRT hasn't beaten its earnings in five consecutive quarters. Not only has BURL beaten its revenue estimates for three consecutive quarters, but it also has either beaten or met its revenue targets in the last six quarters. That level of execution would explain why BURL investors don't appear to be as price-sensitive as Burlington Stores shoppers.

So ahead of the company's fiscal first-quarter earnings results due out Tuesday before the opening bell, BURL stock can still deliver despite how expensive its shares might appear. Consider, at around $54 per share, BURL stock, which has a consensus "Buy" rating, has an average analyst 12-month price target of $66, implying gains of more than 21% from current levels. And if BURL stock were to reach its high analyst target of $70, this would yield some 30% gains.

The average analyst appears to like the company's prospects, as evidenced by the recent rise in projected full-year 2015 estimates, climbing 0.44% in the past seven days to $2.28 per share from $2.27. And since the start of the just-ended quarter, the average estimate for next year (fiscal year 2016) has risen 3.4%, to $2.76 per share from $2.67.

In other words, while BURL stock is far from cheap, the company is projected to deliver on the profit expectations implied by its high P/E. And just for some context, assuming BURL does meet its average analysts 2015 earning target of $2.28, this means next year's earnings are projected to grow by 21%.

This means investors are paying "only" 19 times forward earnings estimates for 21% growth, compared with a forward P/E of 17 for the S&P 500. Sure, that's still two points higher than the S&P 500. Here, too, the average S&P 500 company is not growing earnings at a 21% clip.

In that vein, Burlington's solid string of quarterly performances, coupled with its projected earnings growth rate, makes BURL stock a bargain next year. And that's even more reason to own BURL stock today. Waiting until after its results and outlook are released Tuesday -- while prudent -- might cause you to pay more.

This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.

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