Restoration Hardware (RH) Story 'Significantly De-Risked' with Multiple Drivers, Analyst Says in Upgrade

January 11, 2018 11:00 AM EST
Get Alerts RH Hot Sheet
Price: $673.50 -1.74%

Rating Summary:
    15 Buy, 16 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 7 | Down: 15 | New: 24
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Shares of Restoration Hardware (NYSE: RH) are up roughly 6.0% Thursday morning on a strong upgrade from Loop Capital Markets to Buy (from Hold) and new price target of $120 (from $101).

Analyst Anthony Chukumba believes the RH story "was significantly de-risked in 2017" from a financial and operational standpoint, while the company's operating environment will benefit from "multiple significant near-term tailwinds" heading into 2018.

Chukumba writes that RH management has successfully implemented initiatives to differentiate the business from competitors, citing "proven next generation design galleries and merchandising" that should provide several benefits above and beyond current legacy locations The analyst also notes the recent passage of tax cuts, an improving domestic macroeconomic environment, strong housing market and improving consumer confidence as upside catalysts for the shares.

The Loop Capital analyst acknowledges to clients that the new $120 price target, based on 23.3x time his F2018 diluted EPS estimates, could be "conservative," as it is in line with the historical five-year average. RH shares currently trade at a discount of 17.7x times the analyst's F2018 diluted EPS estimate.

The new price target represents 31.2% upside from Wednesday's close.

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