BoA Merill bumps ASOS up to 'buy'; says risk/reward is attractive

17th Aug 2015 13:42

(ShareCast News) - Online fashion retailer ASOS got a boost after Bank of America Merrill Lynch upgraded the stock to 'buy' from 'neutral' and raised its price target to 4,300p from 4,200p, saying the risk/reward now looks attractive.The bank said competitive pricing internationally, improving delivery options and increasing localisation should boost sales growth. It also said the gross margin could still surprise on the upside in the near term on higher full-price sakes.In addition, Merrill said operating leverage benefits will gradually improve EBIT margins to 6% from 4% over the next three years and 7% in the long term."We believe ASOS can maintain robust top-line growth as it continues to gain market share in multiple countries, convinces major brands to be listed on its website (currently around 800 brands), and boosts own label sales by introducing more categories, improving product quality etc," said the bank.Merrill noted that the stock trades at a 25% discount to its own historical average and a 20% discount to competitor Zalando.The bank lifted its 2015 earnings per share estimate to 44.59p from 44.32 and its 2016 forecast to 56.07p from 55.34p.At 1336 BST, ASOS shares were up 2.5% at 3,232p.