Goldman Sachs Adds Restoration Hardware (RH) to Conviction Buy List; Analyst Sees 33% Upside
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(Updated - August 19, 2016 8:16 AM EDT)
Goldman Sachs upgraded Restoration Hardware (NYSE: RH) from Neutral to Conviction Buy with a price target of $40, implying upside of 33%. Analyst Matthew J. Fassler pointed out a combination of low expectations and potential catalysts. He also sees long-term brand potential.
"RH is in the unique position of operating a potent franchise with low current expectations, idiosyncratic business drivers, and, we believe, two ways to create value: (1) by achieving current expectations, and reverting to growth in 2017, and (2) by engaging in a 'trading sales for profits' strategy, pulling back on some of its more ambitious capital spending plans and conserving cash," said Fassler." Our enthusiasm is driven in part by CEO Gary Friedman’s strong track record as a merchant, with the potential to extend the core brand, and by the firm’s strong positioning for ecommerce, selling only its own brand, with 43% of its business from Direct."
Discussing catalysts, the analyst said, "We expect the business to begin to recover in the 4Q, driven by the mailing of new books (the first time since spring 2015); the implementation of member pricing in these books so advertised prices mirror actual pricing; better in-stock for Modern – slated to approach 90%; and, the inclusion of Modern product in all retail stores by holiday. In a sense, we expect RH to deliver the refresh to its vitality that the market originally expected a year ago, but which was derailed by its own struggles and macro headwinds."
Shares of Restoration Hardware closed at $30.11 yesterday.
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