The analyst firm set a price target of $20 for the retailer.
RBC analyst Brian Tunick believes that Ascena's estimates are "poised to move significantly higher" ahead of the company's "transformational ANN (ANN) deal." The analyst also noted that margins for the company's Justive and Lane Bryant brands are "currently derisked and any recovery in those brands' margins just upside from here."
Tunick wrote, "We see a favorable risk/reward on the shares ($14 downside/$20 upside) given that: 1) the ANN deal will be immediately accretive; 2) the $150MM synergies excludes ANN's $85MM margin efforts; 3) the expectation for double-digit comp declines at Justice has been priced in, with brand margins derisked at 2% vs. peak 13% levels; 4) the Lane Bryant turnaround appears to be gaining traction while maurices and Catherines have momentum."
Separately, TheStreet Ratings team rates ASCENA RETAIL GROUP INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate ASCENA RETAIL GROUP INC (ASNA) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.1%. Since the same quarter one year prior, revenues slightly increased by 0.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- ASNA's debt-to-equity ratio is very low at 0.08 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
- The gross profit margin for ASCENA RETAIL GROUP INC is rather high; currently it is at 58.69%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 2.12% trails the industry average.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Specialty Retail industry and the overall market, ASCENA RETAIL GROUP INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- In its most recent trading session, ASNA has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.
- You can view the full analysis from the report here: ASNA Ratings Report