The recovery of the U.S. economy from its pandemic-led slump makes the backdrop favorable for growth-oriented companies. Capital investments show unprecedented strength, with orders for business equipment from factories rising for a seventh straight month.
Furthermore, a proposed bipartisan infrastructure bill, which is expected to be passed by Congress soon, could add $488 billion to the country’s GDP by 2027.
Growth stocks usually perform well when interest rates are low, and the economy is in an uptrend. So, given Ross Stores, Inc.’s (ROST) and Terex Corporation’s (TEX) stellar earnings and revenue growth, and their future growth prospects, we think these two stocks could be solid additions to one’s portfolio now.
Ross Stores, Inc. (ROST)
ROST operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS stores brands. The Dublin, Calif.-based company offers apparel, footwear, home fashion, and accessories for middle-income and moderate-income households.
On October 11, ROST announced that it had recently opened 18 Ross Dress for Less® and 10 dd’s DISCOUNTS® stores across 15 different states, successfully completing the company’s store-growth plans for its fiscal year 2021. The new stores are expected to expand ROST’s operations to new markets and to bolster its position in existing markets. In June and July, the company opened 22 Ross Dress for Less® and eight dd’s DISCOUNTS® stores as part of the expansion plan.
ROST’s revenue has increased at a 7.1% CAGR over the past five years. Its levered FCF has improved at a 28.7% CAGR over the past three years.
For its fiscal second quarter, ended July 31, ROST’s sales increased 79% year-over-year to $4.80 billion. Its net earnings improved 2,141.8% from the same period last year to $494.26 million, while EPS rose 2,216.7% from the prior-year quarter to $1.39.
A $4.51 consensus EPS estimate for the current year (fiscal 2022) indicates a 478.2% year-over-year rise. The $18.63 billion consensus revenue estimate for the current year reflects a 48.7% improvement from the prior year. Also, ROST has topped consensus EPS estimates in three out of the trailing four quarters. Its EPS is expected to increase 89.8% per annum over the next five years.
The stock has gained 21% in price over the past year to close yesterday’s trading session at $110.66.
ROST’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ROST has an A grade for Growth and Quality, and a B grade for Sentiment. In the 63-stock Fashion & Luxury industry, it is ranked #10. The industry is rated A.
Click here to see the additional POWR Ratings for ROST (Value, Momentum, and Stability).
Terex Corporation (TEX)
TEX in Westport, Conn., is a worldwide seller of aerial work platforms and material processing machinery. The company operates through two broad segments--the Aerial Work Platforms (AWP) segment, manufacturing portable aerial work platforms, material lifts, and utility equipment; and the Materials Processing (MP) segment, producing crushers, washing systems, concrete mixer trucks, and concrete pavers.
On October 27, the company released its ESG report for 2021, highlighting its expansion of electric and hybrid product offerings and its commitment to stakeholders.
Also in October, TEX’s board of directors announced a $0.12 per share quarterly dividend, payable on December 17. This reflects the company’s ability to pay back shareholders.
The company’s levered FCF has grown at a 10.3% CAGR over the past three years. Its EBITDA has grown 96.6% year-over-year.
TEX’s net sales increased 50.4% year-over-year to $1.04 billion in its second fiscal quarter, ended June 30. Its gross profit rose 116.2% from the prior-year quarter to $231.60 million, and its net income and EPS came in at $73.90 million and $1.04, respectively, up substantially from their negative year-ago values.
The Street’s $2.82 EPS estimate for its current year (fiscal 2021) indicates a 2,069.2% year-over-year increase. Likewise, the Street’s $3.86 billion revenue estimate reflects a 25.3% rise from the prior year. In addition, TEX has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to increase by 229.6% per annum over the next five years.
TEX’s stock has gained 75.1% in price over the past year and 25.3% year-to-date to close yesterday’s trading session at $43.70.
It’s no surprise that TEX has an overall B rating, which translates to Buy in our POWR Rating system. TEX has an A grade for Growth and Value. It is ranked #22 out of the 53 stocks in the Industrial – Building Materials industry. The industry is rated B.
To see the additional POWR Ratings for Momentum, Stability, Sentiment, and Quality, click here.
Click here to check out our Infrastructure Sector Report for 2021
ROST shares were trading at $113.44 per share on Thursday afternoon, up $2.78 (+2.51%). Year-to-date, ROST has declined -6.97%, versus a 23.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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