On Friday, TD Cowen showed confidence in Restoration Hardware (NYSE: RH (NYSE:RH)), raising the stock's price target to $500 from the previous $380, while maintaining a Buy rating. Trading at $381.38, RH has shown impressive momentum with a 37.7% gain over the past six months. The firm cited strong quarter-to-date (QTD) demand acceleration as a key factor for the optimistic outlook, highlighting that this momentum is expected to lay a solid foundation for a robust fiscal year 2025 (FY25).
According to InvestingPro analysis, RH is currently trading at premium valuations with notably high earnings and EBITDA multiples. Subscribers can access 10+ additional ProTips and comprehensive valuation metrics in the Pro Research Report.
Restoration Hardware's QTD demand showed a 13% increase, with a notable surge in November demand at 18% and December to date showing a remarkable 30% increase for the RH brand. The analyst pointed out that these figures surpassed the expectations, setting the stage for a strong fourth-quarter exit rate.
Despite a softer gross margin in the third quarter due to some one-time factors, TD Cowen anticipates that ongoing investments and the company's focus on volume and top-line growth may lead to variable margins in the medium term. The company currently maintains a gross profit margin of 44.4%, as reported by InvestingPro.
The analyst's positive stance is supported by a combination of factors including strong and growing demand, a significant pipeline of new offerings such as books, products, and in-store resets, and the opening of 9 new galleries. The depletion of backlogs and improved stock availability, especially in the Outdoor category, were also mentioned as contributing to the company's potential for strong top-line growth in FY25.
TD Cowen's analysis suggests that the current QTD results and the catalyst pipeline could lead to higher expectations for FY25 revenue into earnings per share (EPS), previously anticipated to be in the mid-teens range. The firm's outlook for Restoration Hardware is set against the backdrop of the company's transformative plans for FY25.
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