After A Year Of Improvement, RH Is A Buy, Says Loop Capital Markets
RH (NYSE: RH), formerly known as Restoration Hardware Holdings, saw its stock tumble from north of $100 per share in 2015 to end 2016 around $30 per share. But the stock "significantly de-risked" in 2017 and remains attractive at today's levels, according to Wall Street's newest bull.
The Analyst
Loop Capital Markets' Anthony Chukumba upgraded RH's stock rating from Hold to Buy with a price target boosted from $101 to $120.
The Thesis
2017 was a year when RH "significantly improved" its performance after its "disastrous" RH Modern launch, Chukumba said in the upgrade note. (See the analyst's track record here.)
From a financial perspective, the company improved its comparable brand revenue growth and year-over-year margin expansion in 2017, he said. Management's decision to liquidate returned products in-market and shut half of its distribution centers may have permanently raised its underlying profitability, the analyst said.
Behind the scenes, RH "worked the kinks out" of its RH Members program, which resulted in fewer returns, exchanges and canceled orders, Chukumba said. And the retailer has succeeded in differentiating itself from the competitive landscape — an "increasingly rare feat" in the sector, he said.
"We believe RH's products are higher quality (and higher priced) than other national chains such as Ethan Allen Interiors and Williams-Sonoma, but far less expensive than those of high-end furniture showrooms."
Looking forward, RH's larger next-generation design galleries can not only showcase a larger variety of merchandise, but should increase higher average order sizes and also serve as a "billboard for the RH brand," Chukumba said.
RH stands to benefit from the federal tax cut, which gives the company's core high-income customers a "substantial tax saving," but will also result in the company itself seeing a reduction in its corporate tax rate, according to Loop Capital Markets.
Price Action
RH was up 4.45 percent at $95.55 at the time of publication Thursday afternoon.
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Photo from Wikimedia.
Latest Ratings for RH
Jan 2018 | Loop Capital | Upgrades | Hold | Buy |
Dec 2017 | Barclays | Maintains | Equal-Weight | Equal-Weight |
Dec 2017 | Moffett Nathanson | Initiates Coverage On | Neutral |
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