Jefferies rates Ralph Lauren a buy, with a $195 price target

On Tuesday, Jefferies gave Ralph Lauren Corporation (NYSE: ) a new buy rating and set a price target of $195.00.

The company's analysis shows that Ralph Lauren is ready for continued growth, with sales growth, operating margin (OM%) and earnings per share (EPS) expected to be 3.9%, 13.4% and $11.39 respectively in fiscal 2025. These numbers were in line with consensus expectations for sales growth of 4.3%, OM% growth of 13.3%, and earnings of $11.26 per share.

The launch of the report reflects cautious optimism, acknowledging potential revenue growth challenges due to the tentative nature of the North American wholesale market, economic instability in Europe and unpredictable luxury demand in Asia. However, Jefferies expects Ralph Lauren's margins to expand, driven by cost savings, reduced pressure on cotton prices, as well as brand enhancements and improved average unit retail volume (AUR).

Jefferies' price target of $195.00 is based on a price-to-earnings (P/E) ratio of 15 times fiscal 2026, which is about 15% higher than Ralph Lauren's five-year average but in line with the ten-year average for fiscal 2026. . The valuation takes into account what Jefferies sees as improving fundamentals for Ralph Lauren's business.

The company also believes that Ralph Lauren's market valuation has the potential to continue to rise for three main reasons: the company implements a stable growth algorithm and pays more attention to direct-to-consumer (DTC) sales and brand enhancement. A premium apparel brand with scarcity value, and its appeal as a more affordable alternative to luxury brands, especially with its limited exposure to the potentially slowing Chinese market.

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Investment Professional Insights

Following Jefferies' optimistic outlook on Ralph Lauren Corporation (NYSE:RL), InvestingPro data shows the fashion giant's financial health is strong. The company has a market cap of $10.68 billion and a P/E ratio of 18.57, trading at a discount relative to its near-term earnings growth potential. Looking at the trailing 12-month adjusted P/E ratio to the third quarter of 2024, the P/E ratio is more attractive at 16.96. This is consistent with InvestingPro Tip, which highlights the stock's low P/E ratio given its earnings growth.

Ralph Lauren's gross profit margin is an impressive 65.66%, enhancing the company's ability to maintain profitability despite market volatility. Revenue growth for the trailing 12 months through the third quarter of 2024 was modest at 2.78%, but the company has demonstrated the ability to grow gross profit significantly. This data point complements InvestingPro Tip and highlights Ralph Lauren's impressive gross margin.

Investors may also be confident in the company's recent stock performance, with a strong return of 16.74% over the past three months and an even higher return of 49.81% over the past six months. This trend is worth noting, as InvestingPro Tip highlights, with prices rising significantly over the past six months.

For more detailed analysis and other InvestingPro tips, including insights into Ralph Lauren's dividend consistency and liquidity, visit InvestingPro. Ralph Lauren also offers 13 additional InvestingPro Tips, use coupon code to get an exclusive 10% discount on an annual or two-year Pro and Pro+ subscription PRONEWS24.

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