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How Does RH’s Valuation Compare to Its Peers’?

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Jun. 26 2019, Published 3:30 p.m. ET

Valuation multiple

RH’s (RH) strong first-quarter earnings and investors’ optimism about its sales initiatives appear to have led to a rise in its stock price, which in turn has raised its valuation multiple. On June 24, RH was trading at a forward PE multiple of 12.1x compared to 10.8x before the announcement of its first-quarter earnings results. In comparison, its peers Williams-Sonoma (WSM) and Bed Bath & Beyond (BBBY) were trading at forward PE multiples of 13.0x and 5.5x, respectively.

RH was trading at 12.6 times analysts’ 2019 EPS estimate of $12.64 and 11.3 times analysts’ 2020 EPS estimate of $10.16, with its EPS expected to rise 6.5% in 2019 and 11.7% in 2020.

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Analysts’ estimates

Since RH reported its first-quarter earnings results, Telsey Advisory Group has increased its price target from $125 to $130, while JPMorgan Chase has hiked its price target from $130 to $140. However, Citigroup has lowered its price target from $157 to $148. On average, analysts have a 12-month price target of $136.21 on the stock, which implies a potential upside of 18.4% from its price of $115.01 on June 24. Of the 21 analysts that follow RH, 38.1% have given it “buy” ratings, while 57.1% have given it “holds,” and 4.8% have given it “sells.”

Peer comparison

Of the 24 analysts that follow Williams-Sonoma (WSM), 75% are in favor of “hold” ratings, while 16.7% have given it “sells,” and 8.3% have given it “buys.” On average, analysts have given WSM a 12-month price target of $58.53, which implies a fall of 5.0% from its current price of $61.64.

Analysts favor caution on Bed Bath & Beyond (BBBY), with 76.2% of the 21 analysts that follow it giving it “hold” ratings, 14.3% giving it “sell” ratings, and 9.5% giving it “buy” ratings. On average, analysts’ 12-month price target for BBBY stands at $17.86, which implies a potential upside of 58.7% from its current price of $11.25.

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