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Bull of the Day: Ralph Lauren (RL)

Zacks

Ralph Lauren (RL) shares have surged 25% this year to outpace the apparel market’s roughly 16% climb and the S&P 500’s 12% gains. The luxury fashion brand posted stronger-than-expected holiday quarter results and has seen analysts turn more bullish recently in terms of RL’s bottom-line expansion.

Overview & Growth Plans

Ralph Lauren has long been a powerhouse of more attainable high-end fashion, unlike say Gucci or Saint Laurent, which are owned by Kering SA (PPRUY). On top of Ralph Lauren’s namesake brands, the company owns Club Monaco. The brand competes against the likes of Walmart (WMT)-owned Bonobos. Meanwhile, RL raised its marketing investment by 18% last quarter to help drive brand awareness and attract younger customers, who have been won over by the likes of Lululemon (LULU) and Canada Goose (GOOS).

Last summer, RL and chief executive Patrice Louvet—who took over in 2017—laid out plans to drive growth. Ralph Lauren aims to “lead with digital across all activities, energize core products and accelerate under-developed categories,” and more. The company also projected at the time that its revenue would grow at a compounded annual growth rate in the low to mid-single digits in constant currency between fiscal 2018 and 2023.


Part of Ralph Lauren’s push focuses on e-commerce, including social media. RL has boosted its following on quickly expanding Instagram (FB), where brands are now built and people shop directly, to over 10 million on its core page alone. These efforts helped the company post 20% digital revenue growth last quarter. RL’s digital comps soared 62% in Asia and 21% in North America during Q3 fiscal 2019, which included the vital holiday shopping period. The New York-based fashion giant’s moves helped the company’s quarterly earnings pop over 14% to $2.32 per share and top our quarterly Zacks Consensus Estimate, on the back of 5% revenue growth.

It seems that consumers and investors have been drawn to Ralph Lauren’s longer-term plan to drive growth, especially recently. As we mentioned at the top, shares of RL have surged over 25% this year. Despite the climb, RL stock rests roughly 12% below its 52-week highs at $129.40 per share—which includes Thursday’s 3.76% jump.

With that said, the chart below puts Ralph Lauren’s current climb into historical context and helps investors see that shares of RL still have plenty of room to climb before they would reach their 2014 highs.

Outlook & Earnings Trends

Looking ahead, the firm’s current-quarter revenue is projected to slip 4.3% to hit $1.46 billion. Despite the projected top-line decline, Ralph Lauren is expected to see its adjusted Q4 fiscal 2019 earnings pop 2.2% to $0.92 per share. Clearly, RL’s short-term outlook does not appear that impressive, but it looks poised for longer-term expansion.

The company’s fiscal 2019 EPS figure is projected to jump nearly 17% on the back of 1.4% revenue growth. These positive full-year estimates are expected to be followed up in fiscal 2020. RL’s revenue is projected to jump 2.3% above our current year estimate to reach $6.42 billion. Meanwhile, at the bottom end of the income statement, Ralph Lauren’s adjusted full-year earnings are expected to climb roughly 8% higher than our 2019 estimate to hit $7.60 per share.

Along with the actual bottom-line projections, investors can see that analysts have become far more positive about the company’s earnings outlook. In particular, Ralph Lauren has earned a significant amount of upward earnings estimate revisions for fiscal 2019 and 2020, which helps highlight its longer-term positivity.

Plus, the company’s earnings are projected to climb by 10.3% over the next three to five years, on an annualized basis. And Ralph Lauren almost always beats quarterly earnings estimates, which includes an average positive earnings surprise of 6.9% in the trailing four periods.

Bottom Line

Ralph Lauren’s positive earnings estimate revision trends help it sport a Zacks Rank #1 (Strong Buy) at the moment. RL boasts an overall “A” VGM score, supported by “B” grades for Value and Growth and an “A” for Momentum. The company is also a dividend payer, with a yield of 1.99%, that recently announced a new quarterly payout of $0.625 per share.

Furthermore, Ralph Lauren presents solid value at the moment, trading at 16.6X forward 12-month Zacks Consensus EPS estimates. This represents a discount compared to its industry’s 20X average and falls just below the S&P. More significantly, Ralph Lauren has traded as high as 22.4X during the last five years, with a 17.3X median.

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