What happened

Shares of Burlington Stores (BURL 7.36%) are jumping 18.3% this week, according to data compiled by S&P Global Market Intelligence, following a Wall Street analyst upgrading her price target on the discount apparel retailer.

Morgan Stanley analyst Kimberly Greenberger raised her price target on Burlington Stores 4.8% to $175 while keeping an overweight rating on the stock.

People jumping in front of a Burlington Stores logo.

Image source: Burlington Stores.

So what

Considering the current economy -- with inflation running at 40-year highs, gas prices remaining elevated, and the Federal Reserve ratcheting interest rates higher -- there is a lot of pessimism for the retail industry. When even discount retailers like Walmart and Target are being weighed down by macroeconomic events, it's a notable achievement for Burlington to buck the trend and get a vote of confidence.

According to Thefly.com, Greenberger believes the market is misreading the profit potential of off-price retailers in general and Burlington Stores in particular. Although the economy is pushing sector operating margins below pre-pandemic levels and causing consternation about operating profits over the long haul, Greenberger believes 2023 will give Burlington a greater opportunity to "recapture" margins. Therefore, she raised her earnings-per-share estimates for next year.

Greenberger also raised them for other stocks in the sector, including Ross Stores.

Now what

Even with the surge Burlington shares have enjoyed this week, the stock is still at half of where it was at the start of the year, and with good reason.

Burlington hasn't been a shining star of retail any more than other companies. Last quarter, it reported total sales dropped 10% year over year on a 17% plunge in comparable-store sales, as consumers snapped their wallets closed to concentrate on buying food and fuel.

As CEO Michael O'Sullivan noted at the time, "lower-to-moderate income shoppers continue to face tremendous economic pressure driven by the higher cost of living." Couple that with the resulting high levels of inventory retailers are stuck with, and there is a tremendous amount of promotional activity in the market. Basically everyone is a discounter these days.

The upgrade by the Morgan Stanley analyst seems to suggest she believes these conditions won't persist for too much longer, and in such a situation, true discounters like Burlington Stores will shine again.