Peter Boer/Bloomberg
Ralph Lauren stock got a boost Wednesday from an upgrade by Cowen & Co., which argues that the market is underestimating the apparel maker’s brands.
Shares of Ralph Lauren (ticker: RL) were up 3.1% to $132.88 in morning trading. The stock has climbed more than 24% year to date and 59% in the past 12 months.
Analyst
John Kernan
raised his rating to Outperform from Market Perform, and his price target to $152 from $110. He believes the retailer’s flagship and Polo brands are more popular than many investors realize—especially now, when consumers are itching to refresh their wardrobes after the pandemic. That popularity could allow the company to outperform expectations for years to come.
An economic reopening should trigger a spending shift from athleisure wear to more formal dress, which stands to benefit Ralph Lauren, Kernan writes. Google data supports his thesis: searches for Ralph Lauren increased for the three weeks ended April 11—19%, 15% and 11%, respectively on a 13-week average, its best two-year showing in five years. Data from Comscore shows web traffic is up 30% year over year.
These external catalysts dovetail with internal improvements at Ralph Lauren, the analyst wrote. Reorganizations should reduce fixed costs by some $200 million relative to fiscal 2019.
That leads Kernan to raise his fiscal 2022 revenue forecast to $5.8 billion from $5.6 billion, above the $5.64 billion consensus estimate, although he notes that his outlook could be conservative. He also thinks Ralph Lauren’s coming fiscal fourth quarter, due out on May 20, could surprise on the upside as well.
Kernan also believes that the Street’s model for how long it will take Ralph Lauren to recover from the pandemic is too conservative. Before March 2020, the company was expecting to earn about $8.35 a share for the year, a figure that ultimately fell to $6.56; now consensus estimates don’t have Ralph Lauren’s EPS returning to above $8 until fiscal 2024. By contrast, he thinks Ralph Lauren could earn $9 a share or more by that time.
Other analysts have been getting more bullish on the shares as well.
Write to Teresa Rivas at teresa.rivas@barrons.com
