Ollie's Bargain Outlet (OLLI) momentum may ebb in the medium term after the company showed "strong execution amid a favorable closeout environment," Morgan Stanley said Wednesday in a note following the retailer's fiscal Q3 results.

Ollie's valuation upside is seen as limited now that the temporary boost from retail store closures has passed and industry drivers are normalizing, the note said.

The retailer's Q3 trends were "softer than expected" with comparable sales growth of 3.3% below consensus expectations of 4% growth due to high single-digit percentage declines in its average unit retail price, Morgan Stanley said.

The company may still deliver upside to the Q4 comp outlook of 2% to 3% because "Q4-to-date trends are running slightly higher, and AUR has inflected" to low single-digit growth, the note said.

Morgan Stanley lowered its price target on Ollie's stock to $130 from $145 and maintained its equal-weight rating.

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