is climbing on Friday, a day after the home goods retailer plunged to a 52-week low on the heels of a lowered forecast.
argues the worst is in the rearview mirror.
Analyst Steven Zaccone reiterated a Buy rating on
), although he lowered his price target to $338 from $447.
He acknowledges that investor sentiment isn’t on RH’s side, as the worries proliferate about demand for its core business and the company’s ability to execute on its more ambitious initiatives. Yet at the same time, the stock’s plunge—RH is off about 60% since the start of the year—is already reflecting that.
Indeed, with the shares now changing hands for about 9 times his lowered 2023 earnings per share estimates and 19 times its prepandemic 2019 EPS power, RH is already at “the most extreme bear case EPS scenario,” Zaccone writes. That means right now, the risk for RH “skews to significantly more upside than downside at current valuation.”
Of course, as Barron’s noted, the worry is that even RH’s more well-heeled consumers are feeling the pinch of inflation and stock market losses, causing them to pull back after years of pouring money into their homes. That doesn’t mean the company can’t continue to win market share and expend in the luxury space, but it would hamper the shares near term.
For his part, Zaccone argues that while it seems prudent to be conservative about demand estimates, given the swiftly changing backdrop, RH isn’t the same company that entered the pandemic.
“Put simply, the stock’s current price is giving RH essentially no credit for incremental earnings since 2019 for the opening of new galleries, the upcoming launch of Contemporary [its line of home goods created via designer collaborations], the significant opening roadmap in Europe the next few years, and general organic growth in the business,” he writes. “We think this is overly harsh for a business that has catalysts of newness post-pandemic with a balance sheet armed with cash to buy back stock.”
For now, the market seems to agree that the stock may be worth another look after yesterday’s big decline. RH is up 1.5% to $215.48 in recent trading.
Write to Teresa Rivas at [email protected]