Ralph Lauren Stock: Why Are Analysts Bullish?

  • Barclays initiated coverage on Ralph Lauren stock with an “overweight” rating.
  • Most of the analysts recommend a “buy” on the stock.
  • Ralph Lauren stock has risen about 10% in the last five trading days.

On Wednesday, Barclays initiated coverage on Ralph Lauren (RL) stock with an “overweight” rating. Barclays put a target price of $130 on the stock. The target price implies an upside of about 17% based on the stock’s closing price of $110.66 on Wednesday.

Notably, favorable geographic and product mix and sustained momentum in comps made Barclays upbeat on Ralph Lauren stock.

Most analysts are bullish on Ralph Lauren stock

Most of the analysts covering Ralph Lauren stock maintained a positive outlook. Among the 18 analysts covering the stock, ten recommend a “buy,” six recommend a “hold,” and two recommend a “sell.”

Analysts have an average target price of $123.44 on Ralph Lauren stock, which implies a potential upside of 11.6% based on the closing price on Wednesday.

Recently, several analysts made upward and downward revisions to their target prices following Ralph Lauren’s second-quarter results. Analysts made the following revisions:

  • Cowen raised the target price to $135 from $107.
  • RBC increased the target price to $130 from $128.
  • CFRA raised the target price from $80 to $90 and maintained a “sell” rating.
  • Wells Fargo cut the target price to $128 from $135.
  • Needham lowered the target price to $130 from $138.

What’s driving the stock?

Ralph Lauren stock has increased by about 10% in the last five trading days due to its stellar quarterly performance. While most apparel companies are struggling to lift sales amid weakness in department stores, Ralph Lauren sustained its comps growth momentum.

During the last reported quarter, the company’s revenues rose 1% and beat analysts’ expectations. Meanwhile, Ralph Lauren’s comps rose about 2%, which reflected a favorable geographic, product, and channel mix. Besides, the company’s EPS marked double-digit growth due to margin expansion and beat analysts’ estimates.

Ralph Lauren expects to sustain the momentum in the base business in the coming quarters. The company projects a YoY improvement in its sales and margins in fiscal 2020.

In comparison, Gap (GPS) expects its comps to continue to decline due to weakness across all of its brands. Gap stated that its third-quarter comps fell 4%. By brands, the comps for Gap’s namesake brand fell 7%. Meanwhile, the comps for Banana Republic and Old Navy fell 3% and 4%, respectively.

Will the uptrend continue?

We expect sustained momentum in comps and earnings to support Ralph Lauren stock. However, near-term sales and margin headwinds could remain a drag. Management expects the company’s third-quarter sales and margins to remain subdued. Analysts expect Ralph Lauren’s revenues to fall in the third quarter. Meanwhile, analysts expect the EPS growth rate to decelerate sequentially.

Near-term challenges and weakness in the wholesale business could remain a drag and limit the upside.