Bull of the Day: Ralph Lauren (RL) – February 14, 2020

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Ralph Laruen (RL Free Report)  is a Zacks Rank #1 (Strong Buy) that is a major designer, marketer and distributer of premium lifestyle brands. The company offers products in the apparel, footwear, accessories, home furnishings, and other licensed product categories. Some popular brands include Polo, Purple Label, Polo Golf, Ralph Lauren Children.

Impressive Q3 Earnings Help Stock Jump 10%

Earlier this month, the company reported a 17% EPS surprise to the upside. The stock popped from $113 to $129 on premarket trading before pulling back to the $120 level. The reason for the move higher was a both top and bottom line beat, along with positive guidance. Revenues came in at $1.75 Billion vs the $1.71 expected. Along with the revenue beat, the company guided Same Store Sales up 2% and Q4 revenue up slightly.

The EPS beat is normal for the Ralph Lauren, but the magnitude was much higher than the company has been seeing. For that reason, investors cheered the quarter and have been buying the stock.

CEO Patrice Louvet had some positive comments on the quarter: “We continue to make strong progress on our Next Great Chapter plan amid a volatile backdrop, with third quarter results ahead of our overall expectations, including better than expected revenues, operating margin, and double-digit EPS growth.”

Piper had positive comments after earnings, saying that while traffic remains challenging, AUR strength, digital ecosystem improvement and GM upside delivery are positives. Since earnings, the stock has also seen positive comments from Citigroup and Telsey Advisory Group, with the later giving the stock a $140 price target.

Overall, analyst estimates have gone higher for the current year, despite fears surrounding the trade war and the Coronavirus. Analyst have lifted the current years expectations 5.5%, from $7.69 to $8.12 over the last 30 days. Moreover, 2021 estimates have gone up 5% over that same time period.

Ralph Lauren Corporation Price and ConsensusShares of Ralph Lauren are up almost 50% from the lows made in August of 2018. While the recent improvement in the business might be priced in, there is reason to believe that the stock can continue higher. The $120 level has been resistance since last summer and with the stock above that level, a breakout could come. There is still a long way to go to get to all-time highs of $192, but with the recent earnings improvement the stock has bulls watching closely.  

Is Coronavirus a Risk?

The company is exposed to China so there is a valid concern that future manufacturing and revenues could be hurt. The company was out this week to give some color on the issue announcing that 2/3rds of the company’s stores have closed. They also stated that $55- $470 million in sales could be negatively impacted. With almost $2 Billion in sales, the longer it lasts the worse it will be. However, considering the slowing of the virus recently, this is perceived as a small risk at the moment.

In Summary

Over the last few years, investors have avoided retail in every form. However, there are pockets that are succeeding because of positive earnings numbers stemming from great management. Ralph Lauren looks poised to finally break out of its multi-year rut and head higher.

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2020-02-14 11:00:00

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