Ralph Lauren Just Became A Must Own Stock

Key Points

• Shares are up 50% since last quarter. 
• The company continues to do well in the face of dwindling consumer spending. 
• Analysts see at least another 20% upside from current prices. 

As if a beat on its EPS and revenue estimates wasn’t enough in last week’s earnings report, Ralph Lauren Corp NYSE: RL got another feather in its cap. As the bell rang to start yesterday’s trading, the team at Bank of America upgraded their rating on Ralph Lauren stock, moving it up to a Buy.

This was based on the team’s confidence in the apparel giant’s revenue continuing to trend upwards, largely due to the strong diversification of the brand. Also lauded as a key factor in the bullish outlook was management’s nimble navigation and ability to cut costs to get through a difficult trading environment. 

Christopher Nardone and his team of analysts at Bank of America believe that Ralph Lauren’s management has factored in appropriate prudence regarding “the U.S. value channel and European wholesale business in its outlook”. 

In a note to clients, he wrote, "we expect the efforts the company has made to clean up its N.A. business will be a key differentiator compared to other vendors this year as retail brands continue to navigate a promotional retail environment. We expect Ralph Lauren’s brand elevation strategy will continue and that average unit retail (AUR) and market share gains will drive consistent revenue growth.”

Ralph Lauren $145 Price Target

Nardone also believes that Ralph Lauren is tracking toward its medium-term operation margin target of 15%, which it expects to hit by FY25. Off the back of last week’s earnings beat, they upped their estimates on the stock’s EPS for FY23-FY24, which only bodes well for the underlying shares.

Looking at them specifically, Bank of America has slapped a fresh price target of $145 onto them, which points to a targeted upside of around 20% from where they closed last night. 

The stock had traded largely sideways since last week’s release but was up yesterday as investors seemed to make up their mind conclusively on the strength of the long term opportunity now at hand. Indeed, the company’s CEO Patrice Louvet led the charge on this front when he said last week that “while we remain very attuned to the dynamic global operating environment, the breadth of our portfolio of products and our multiple engines of growth create the flexibility that will enable our teams to continue to be agile, adapt and deliver even in this challenging backdrop.”

Ralph Lauren shares were up 4% in yesterday’s session, putting them up about 20% since the end of last year. This is about double the return of what the S&P 500 index has done over the same period, so it’s safe to say the current rally is well on its way to forming a multi-month uptrend that will soon be testing the highs of recent years. Shares topped at around the $135 mark last year and $140 in 2021.

Considering the headwinds they’ve faced as a luxury consumer item, namely soaring inflation and the knock-on effect to consumer spending, they’ve done remarkably well. Sure, there was a lot of selling last year, but what equity escaped unscathed? 

Getting Involved

Investors thinking about getting involved have fundamental and technical tailwinds in their favor, though the stock is not without its detractors. Towards the end of last month, the team at BMO went so far as to cut their rating on Ralph Lauren shares to Underperform, feeling that the upward move from Q4 was starting to become detached from reality.

But looking at the latest release, their concerns about operating margins being hurt by increasing supply chain pressures and marketing spending seem to have missed the mark.

It will be interesting to see if they change their tune in the coming sessions. In the meantime, watch for shares to trend toward the $130 mark. Further upside surprises could quickly send them to multi-year highs.