FBR: Burlington Pullback Creates 'Interesting Opportunity'

In a report published Thursday, analysts at FBR Capital Markets initiated coverage of Burlington Stores Inc (NYSE: BURL) with an Outperform rating and a price target of $65.

Burlington's share price has more than doubled since the company went public in October 2013 but retreated in recent times due to investor concerns of whether the company's growth story is over.

The recent retreat in Burlington's share price and the slowdown in earnings growth at its peers like Ross Stores, Inc (NASDAQ: ROST) (rated Outperform) TJX Companies Inc (NYSE: TJX) (rated Outperform) make Burlington shares attractive.

Burlington's set up is similar to that of Ross Stores in late 2012 The analysts added, "At the time, the key to the ROST story was that the shares had more than doubled from $32 to $70, driven by strong comps and significant EBIT margin expansion, resulting in two consecutive years of 20%-plus EPS growth."

Ross shares began to trade off, however, as the Street thesis evolved to "ROST has had a great run, but it's time to lock in profits." However, Ross subsequently doubled again during FY13 and FY14.

The departure of CMO Paul Metcalf is unlikely to significantly change the Burlington Story. "Mr. Metcalf and his lengthy industry experience, has been sold as a key ingredient in the Burlington story, but it is more likely that the fundamental impact of his departure is being overstated by the Street, in our opinion," the analysts mentioned.

"We believe that BURL is at an interesting point in its cash flow life cycle and that cash flow scalability is going to kick in during FY15 and accelerate in FY17 and beyond," the report mentioned.