It's Time to Go Shopping For Burlington Stock

Retail stocks have been showing strength as pent-up demand shows up in increased revenue. Burlington Stores (NYSE:BURL) reports earnings on May 27 before the market opens and many analysts are expecting more of the same. And by more of the same I mean a beat in earnings and revenue. 

Burlington has been in the good habit of beating analysts’ estimates. The company has beaten revenue estimates in three out of the last four quarters. And the same is true of earnings per share (EPS). The only quarter, Burlington fell short of EPS estimates was in the first quarter of 2020. However that was at the onset of the pandemic when there was still a lot of uncertainty in the economy.  

Analysts are forecasting 92 cents in EPS for the quarter on revenue of $1.73 billion. The EPS forecast has been upgraded prior to the earnings report which is always a bullish sign. And the whisper number suggests that Burlington may outperform even the upgraded number with an EPS of $1.09.  

However with BURL stock up nearly 30% in 2021 and up 57% in the trailing twelve months, it’s fair to wonder if the stock has more run left. Let’s take a look at the story behind the price movement.  

Doubling Down on Brick and Mortar 

One of the unexpected stories emerging from earnings season is the resurgence of brick-and-mortar retail. Just 12 months ago, many analysts predicted the death of in-person shopping. E-commerce which was already on the rise got a catalyst from the Covid-19 pandemic. 

When millions of Americans had no other alternative but to shop online, they did exactly that. And recent surveys suggest some shoppers may not go back to their old ways. They simply enjoy the convenience of online shopping and curbside pickup or home delivery.  

But discount chains like Burlington have a distinct advantage. The customer base at these stores tends to have a lower income than other retailers. And they tend to choose locations that are not well-served by other chains.  

In March Burlington announced plans to open 100 new stores in 2021 and the company sees a path to open 2,000 new stores in the future. That’s up from a prior estimate for opening 1,000 stores. As my MarketBeat colleague Nick Vasco wrote in March of this year, the growth is slow and steady and that’s why it’s believable.  

What makes the Burlington story even more remarkable is that the company does not sell items online. The company believes it adds to the “treasure hunt” effect their stores have. The idea is that the company’s website lets consumers see items that are now available for purchase at the store. 

Do Fundamentals Matter? 

A bearish argument against Burlington is its forward price/earnings ratio which sits at 45.27. That’s a hefty price to pay. However, that number is still pricing in a lot of the weakness that the company had earlier in 2020. Keep in mind, it was only in the last quarter that the company posted a year-over-year beat in revenue.  

Hit the Buy Button on BURL Stock 

A glance at the consensus 12-month price target for BURL stock is bearish. At $297.14, the stock could drop about 10% from its level as of this writing. But looks can be deceiving. In the last 30 days (since April 26), Burlington has received four price target upgrades and all of them are significantly higher than where the stock is trading as of this writing (approximately $330).  

Burlington stock has been showing an attractive consolidation pattern in advance of earnings. Although BURL stock has been trading in a bit of a wide range in the last month, traders look to have well-defined areas of support (around $321.75) and resistance (around $333.75).  

Brick-and-mortar retail is beating long odds in the last 12 months and BURL stock is rewarding investors who went along for the ride. With an earnings report that is expected to be strong, I’m looking for more of the same for Burlington Stores.