Question

1. 1. What types of debt securities has Ross Stores (ROST) issued?
   2. What are the current ratings and yields to maturity for the company's debt securities?
   3. What factors do you think explain the yield levels?

   * In the event that none of the companies in your portfolio has any outstanding bonds, please notify your professor for an alternative assignment.

2. Choose any one of the bonds issued by Ross Stores (ROST) in your portfolio and make a case for one of the following. Assume a holding period of three to five years.
   1. Its substitution for the company's stock in your portfolio.
   2. Its addition to your portfolio.
   3. Its exclusion from your portfolio.

Answer 1

Ross Stores Inc (NASDAQ:ROST) is a large-cap stock, with a market capitalization of USD $27.50B, operating in the ross stores, inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the ross dress for less and dd’s discounts brand names in the united states. industry. Most investors favour these stocks due to their strong balance sheet and high market liquidity, meaning there are an adundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for ROST, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. For ROST, the debt-to-equity ratio is 13.88%, which means its debt level does not pose a threat to its operations right now. While debt-to-equity ratio has several factors at play, an easier way to check whether ROST’s leverage is at a sustainable level is to check its ability to service the debt. A company generating earnings at least three times its interest payments is considered financially sound. ROST’s profits amply covers interest at 175.04 times, which is seen as relatively safe. Lenders may be less hesitant to lend out more funding as ROST’s high interest coverage is seen as responsible and safe practice.

ROST’s relatively safe debt levels is even more impressive due to its ability to generate high cash flow, which illustrates operating efficiency. Given that ROST’s financial position may differ over time, You should continue exploring market expectations for ROST’s future growth on our free analysis platform.

Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. After all, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. ROST’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.

Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Ross Stores, Inc. (NASDAQ:ROST). With a market valuation of US$36b, ROST is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Today I will analyse the latest financial data for ROST to determine is solvency and liquidity and whether the stock is a sound investment.

ROST has shrunk its total debt levels in the last twelve months, from US$397m to US$312m , which includes long-term debt. With this debt repayment, ROST’s cash and short-term investments stands at US$1.4b to keep the business going. Moreover, ROST has generated cash from operations of US$2.1b over the same time period, resulting in an operating cash to total debt ratio of 661%, indicating that ROST’s current level of operating cash is high enough to cover debt.

With current liabilities at US$2.0b, it seems that the business has been able to meet these obligations given the level of current assets of US$3.4b, with a current ratio of 1.69x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Specialty Retail companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. With debt at 9.5% of equity, ROST may be thought of as having low leverage. ROST is not taking on too much debt commitment, which may be constraining for future growth.

ROST has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ROST has been performing in the past. I suggest you continue to research Ross Stores to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for ROST’s future growth? Take a look at our free research report of analyst consensus for ROST’s outlook.
2. Valuation: What is ROST worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ROST is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

ROST has been a strong performer, evident from its robus t earnings surprise history and the stock momentum. In fact, the company has been consistently doing well, courtesy of its commitment toward merchandising initiatives, off-price model and store expansion. As a result, Ross Stores has emerged as an attractive investment option.

Driven by these positives, shares of this Zacks Rank #3 (Hold) company have surged 14.3% in a year, against the Retail-Wholesale sector's 3.8% decline. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Ross Stores is also reaping the benefits of the boom in the Retail - Discount Stores industry. The unique off-price model of discount stores makes it an attractive destination for customers in all economic scenarios. The industry gains strength mainly from the efforts of constituent players to grab a bigger share on attributes such as price, products and speed to market. Further, these companies are steadily strengthening their digital ecosystem and omni-channel capabilities as well as boosting shipping and delivery capabilities in the face of fierce competition from Amazon AMZN .

Looking more closely at stocks in the broader industry, we note that the Ross Stores has outpaced its peers. Notably, stocks like Burlington Stores BURL , TJX Companies TJX and Target TGT have witnessed growth of 5.1%, 8.2% and 10.7%, respectively, in a year.

ROST Vs. Peer Group

Let's delve deeper and find out reasons that are placing Ross Stores ahead of its peers.

Off-Price Model Boosts Top and Bottom Lines

Ross Stores' off-price model provides strong value proposition and micro-merchandising that drive product allocation and margins. This helped the company to deliver solid top- and bottom-line trends.

The company boasts a positive surprise trend, which continued in first-quarter fiscal 2019. In the quarter, its bottom line surpassed the Zacks Consensus Estimate and improved on a year-over-year basis, marking the 12th consecutive earnings beat. Earnings gained from ongoing success in delivering broad assortments of compelling bargains to value-focused customers.

Ross Stores, Inc. Price, Consensus and EPS Surprise

Ross Stores, Inc. price-consensus-eps-surprise-chart | Ross Stores, Inc. Quote

Although sales missed the consensus mark in the first quarter, it improved year over year on robust comparable store sales (comps) backed by increased average basket size. Comps also gained from strength in the men's category, offset by softness in ladies apparel. Midwest was the best performing region. Markedly, sales topped estimates in 10 of the last 12 quarters.

Store Expansion on Track

Ross Stores has consistently been on track with its store expansion plans. Evidently, the company opened 28 stores in February and March, comprising 22 Ross and six dd's DISCOUNTS stores. This marked the completion of the company's planned store expansion for first-quarter fiscal 2019. In the fiscal second quarter, it expects to open 28 stores including 22 Ross and 6 dd's DISCOUNTS stores. Additionally, Ross Stores is on track to meet the target of inaugurating 100 stores in fiscal 2019 including 75 Ross and 25 dd's DISCOUNTS outlets.

It should be noted that the company's store expansion efforts are focused on increasing penetration in the existing as well as new markets. Currently, it operates 1,745 Ross stores and dd's DISCOUNTS stores across 38 states, the District of Columbia and Guam. Over the long term, Ross Stores expects to operate about 3,000 stores, expanding the Ross chain of stores to 2,400 locations, and nearly 600 dd's DISCOUNTS stores.

Bullish Outlook

Following the robust first quarter, Ross Stores issued an encouraging view for second-quarter fiscal 2019. The company anticipates comps to be up 1-2%. Total sales are estimated to increase 5-6%. Moreover, the company envisions earnings per share of $1.06-$1.11 compared with $1.04 recorded in the prior-year quarter.

Driven by first-quarter results and expectations for the second quarter, Ross Stores raised its earnings view for fiscal 2019. It now estimates earnings per share of $4.38-$4.52 compared with $4.30-$4.50 anticipated earlier.

These apart, we believe there is still momentum left in the stock of this CA-based discount stores operator as it has a long-term impressive earnings growth rate of 10.4% and a VGM Score of B.