On Tuesday, Ralph Lauren Corporation (NYSE:RL) shares received a new Buy rating from Jefferies, accompanied by a price target set at $195.00.
The firm's analysis suggests Ralph Lauren is positioned for continued growth, with expectations for sales growth, operating margin (OM%), and earnings per share (EPS) in fiscal year 2025 to be 3.9%, 13.4%, and $11.39 respectively. These figures align with consensus estimates of 4.3% for sales growth, 13.3% for OM%, and $11.26 for EPS.
The coverage initiation reflects cautious optimism, acknowledging potential revenue growth challenges due to a tentative North American wholesale market, an unsettled European economy, and unpredictable luxury demand in Asia. However, Jefferies anticipates margin expansion for Ralph Lauren, driven by cost savings, reduced cotton price pressures, and the brand's elevation and average unit retail (AUR) improvements.
Jefferies' target price of $195.00 is based on a 15 times price-to-earnings (P/E) ratio for fiscal year 2026, which is approximately 15% higher than Ralph Lauren's five-year average but aligns with the ten-year average of 14.8 times. This valuation takes into account what Jefferies sees as improved business fundamentals for Ralph Lauren.
The firm also sees potential for Ralph Lauren's market valuation to continue to increase, citing three main reasons: the company's execution of a stable growth algorithm with a greater focus on direct-to-consumer (DTC) sales and brand elevation, its status as a quality apparel name 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.
InvestingPro Insights
Following Jefferies' optimistic outlook on Ralph Lauren Corporation (NYSE:RL), InvestingPro data shows a robust financial status for the fashion giant. With a market capitalization of $10.68 billion and a solid P/E ratio of 18.57, the company is trading at a discount relative to its near-term earnings growth potential. The P/E ratio is even more attractive when looking at the adjusted last twelve months as of Q3 2024, which stands at 16.96. This aligns with the InvestingPro Tip emphasizing the stock's low P/E ratio in light of its earnings growth.
Ralph Lauren's gross profit margin is an impressive 65.66%, reinforcing the company's ability to maintain profitability despite market fluctuations. The revenue growth for the last twelve months as of Q3 2024 is modest at 2.78%, yet the company has demonstrated a capacity to grow its gross profits significantly. This data point complements the InvestingPro Tip highlighting Ralph Lauren's impressive gross profit margins.
Investors may also find confidence in the company's recent stock performance, with a strong return of 16.74% over the last three months and an even more remarkable 49.81% over the last six months. This trend is noteworthy, as highlighted by the InvestingPro Tip regarding the large price uptick in the past six months.
For more detailed analysis and additional InvestingPro Tips, including insights on Ralph Lauren's dividend consistency and liquidity, visit InvestingPro. There are 13 additional InvestingPro Tips available for Ralph Lauren, which can be accessed with an exclusive 10% discount on a yearly or biyearly Pro and Pro+ subscription using the coupon code PRONEWS24.
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