RH-$288 ?
Morgan Stanley sees significant opportunity ahead for Restoration Hardware Holdings (NYSE:RH).
In an initiation note released on Monday, the New York-based bank termed the company the “brand with the most long-term upside potential in our coverage”, assigning a $400 price target to shares. The target reflects a significant premium to Friday’s closing price of $289.65.
“We view RH as a well-managed business with a strong track record of execution and ability to grow revenue, expand into new TAMs, and expand its margins (which sit at the high end of our coverage) over time,” Equity Analyst Simeon Gutman said. “
He added that the company is a “share gainer with pricing power” that is insulated from some inflationary concerns via its high-end product range. Further, an international expansion underway could provide more upside alongside more share repurchase optionality.
To be sure, Gutman was concerned about short term pressures that will limit the stock’s ability to reflect this upside. He noted that the company’s exposure to macro risks, especially of a recession, temper his confidence in the 12-month trajectory for shares.
"RH's current stock price largely already factors in recession risk rather than a structural
dislocation in valuation," Gutman concluded. "Despite our belief in the long-term earnings potential of the business and we can envision RH being an attractive core holding...it could take an extended period for fears of economic weakness to dissipate."
As a result, despite the $400 price target, Gutman assigned an “Equal-Weight” rating to the stock. He concluded that as “recession risks loom” even the “transcendent” RH brand is range-bound and subject to a vibrant bull-bear debate over retail normalization post-pandemic.
I told you earlier RH would go up on HD's report.
Already good for $10.

