Investing.com -- Jefferies upgraded Five Below to Buy from Hold and raised its price target to $350 from $210, arguing that investors are underestimating structural improvements at the discount retailer and focusing too heavily on the temporary boost from its popular “squishy” products.

The brokerage said the company’s merchandising transformation under CEO Winnie Park is creating a more durable growth model, with stronger product selection, pricing and customer data helping drive traffic and store productivity. It said the core business delivered high-single-digit comparable sales growth in the first quarter even excluding the trend benefit, while foot traffic continued to grow at a high-teens rate after the squishy trend peaked.

Jefferies said the company’s sales per square foot rose 11% in fiscal 2026, which it views as the beginning of a multi-year productivity cycle rather than a one-off improvement. Combined with high-single-digit annual store growth, the brokerage expects the productivity gains to support double-digit sales growth through fiscal 2029.

The analysts also see earnings growing faster than revenue as higher productivity, lower shrink, sourcing efficiencies and fixed-cost leverage expand margins. Jefferies forecasts a 27% compound annual growth rate in earnings per share through fiscal 2029 in its base case, with even its bear case calling for a 24% EPS CAGR.

The brokerage compared the retailer’s transformation with TJX’s earlier productivity-driven expansion, which eventually led to a significant valuation re-rating. It said Five Below trades at about 22 times forward earnings, below its roughly 28-times historical average, leaving room for a re-rating if investors become convinced that its productivity gains are structural.

Jefferies also highlighted Five Below’s store expansion opportunity, saying the retailer has about 1,430 units of potential whitespace as it moves toward a target of more than 3,500 stores. The company currently has about 1,970 stores, with significant room for expansion in western U.S. markets.

The brokerage’s new $350 target represents 47% upside from the prior closing price cited in the report. Its estimates are above consensus across the forecast period, with fiscal 2028 and 2029 EPS estimates 18% and 21% higher than consensus, respectively.