RH’s robust financials
Part of this remarkable growth has been RH’s robust financial performance. RH continues to outgrow its peers, including Home Depot (HD) and Lowe’s (LOW). Moreover, RH has increased its fiscal 2019 guidance for the fourth time this year, which is encouraging. Furthermore, Warren Buffet’s Berkshire Hathaway recently revealed its stake in the company, further boosting investors’ confidence in the stock.
The steep rise in RH stock helped it beat the broader markets by a wide margin. In comparison, the S&P 500 is up 25.1% YTD.
RH stock is trading near its record high. It’s trading about 3% lower than its 52-week high of $243.67 and about 182% higher than its 52-week low of $84.11. In comparison, Home Depot, Lowe’s, and Bed Bath & Beyond (BBBY) are up 26.0%, 27.6%, 36.1%, respectively, YTD.
RH also outperformed its peers in 2018. In the year, it rose 39%. Meanwhile, Home Depot and Lowe’s fell 9.3% and 0.6%, respectively. Shares of Bed Bath & Beyond fell 48.5% in the period.
What’s driving RH stock up?
As discussed above, RH’s outperformance stems from its robust financial performance. Notably, RH’s top and bottom lines are growing at a better rate than its peers’. Moreover, RH’s management continues to raise its outlook, which acts as a catalyst.
Despite challenges in the third quarter, RH exceeded Wall Street’s estimates and increased its fiscal 2019 outlook for the fourth time this year. Analysts expected its exit from underperforming businesses and its closure of a distribution center to affect its third-quarter revenue. Its margins were also expected to remain pressured.
However, that didn’t happen. RH’s revenue and EPS topped Wall Street’s expectations. Meanwhile, its gross and operating margins expanded by 70 and 340 basis points, respectively. RH’s bottom line soared 74% YoY (year-over-year) and beat analysts’ estimate by a wide margin.
In comparison, Home Depot’s revenue is taking a hit from lower lumber prices and weather-related issues. During the third quarter, Home Depot’s revenue improved by 3.5% YoY. However, it fell short of Wall Street’s expectations. Also, Home Depot lowered its full-year sales outlook for the second time this year.
Like Home Depot, Lowe’s third-quarter revenue also fell short of analysts’ expectations. However, its adjusted EPS jumped about 36% YoY and surpassed analysts’ estimates. The company also increased its full-year EPS guidance.
RH raises guidance
Buoyed by a strong financial performance and the anticipated growth ahead, RH once again increased its full-year guidance. RH now expects its adjusted EPS to be $11.58–$11.70, up from its previous forecast of $10.78–$11.01. This new guidance reflects YoY growth of 48%–50% in its bottom line.
Meanwhile, for the fourth quarter, RH expects its adjusted EPS to be $3.50–$3.62. This guidance reflects YoY growth of 20%–24%.
RH expects its full-year revenue to be $2.685 billion–$2.694 billion, reflecting YoY growth of about 7%. As for the fourth quarter, its revenue is likely to rise 5%–6%.
RH stock: Analysts raise their targets
Multiple analysts raised their price targets on RH stock following its upbeat performance and higher outlook. Analysts made the following upward revisions to their price targets:
- Cowen increased its price target to $238 from $155.
- Baird raised its price target to $220 from $168.
- Bank of America Merrill Lynch currently has a price target of $235.
- UBS raised its price target to $210 from $160.
- Stifel increased its price target to $230 from $202.
- Wedbush currently has a price target of $230, up from $185.
- Telsey Advisory raised its price target to $234 from $185.
- JPMorgan Chase increased its price target to $260 from $230.
Analysts have an average price target of $233 on RH, which is about 1.8% lower than its closing price of $237.37 on December 9. Eight analysts recommend “buys” on RH, while 12 analysts suggest “holds.”