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On Monday, TD Cowen highlighted its top picks within the Hardlines retail sector, emphasizing Planet Fitness (NYSE:PLNT), RH (NYSE:RH), and O’Reilly Automotive (NASDAQ:ORLY) as its preferred stocks in the face of current economic uncertainty. According to InvestingPro data, RH currently commands a market capitalization of $4.8 billion, with its stock showing significant volatility as reflected in its beta of 2.51. Analyst Max Rakhlenko noted the slow start to the first quarter, attributing it to factors such as macroeconomic ambiguity, adverse weather conditions, and waning consumer confidence, particularly as tariffs begin to affect pricing.
Rakhlenko pointed to several high-frequency data indicators that are vital to the Hardlines retail landscape. Despite the 30-year fixed mortgage rate sitting at a relatively high 6.7%, it has seen a slight decline from recent peaks. Mortgage applications remained stable week over week and showed a 6% year-over-year increase. However, the analyst underscored that applications have not significantly responded to the lower rates. Consumer confidence, especially regarding large-ticket durable goods, is on the decline. In contrast, home equity line of credit (HELOC) rates have dropped to 8%, the lowest in two years. Weather patterns suggest a warmer end to March, yet a colder trend from April to July compared to the previous year. Tax refunds are moderately higher year over year, and there is a growing likelihood of increased home movement.
The report expressed particular concern over falling consumer confidence, especially as retailers start to pass through tariffs, which could further dampen sentiment. Going forward, Rakhlenko believes that personal consumption expenditures (including savings), employment data, and pending home sales will be the most critical indicators to monitor. InvestingPro analysis reveals RH maintains a current ratio of 1.43, indicating sufficient liquidity to meet short-term obligations despite market challenges.
In a detailed look at the top stock picks, Rakhlenko mentioned that Planet Fitness is well-positioned as a defensive, service-oriented company with a high value proposition and a favorable catalyst path, as indicated by positive checks and increasing first-quarter membership and comparable store sales expectations. RH, despite facing pressure on its shares largely due to market positioning and risk aversion, still presents solid data. InvestingPro analysis shows RH trading at a P/E ratio of 64.09, with revenue growth of 1.41% in the last twelve months. The company’s latest financial health assessment indicates challenges ahead, with 12 additional exclusive ProTips available to subscribers through InvestingPro’s comprehensive research platform. However, concerns about future demand persist due to market volatility and its potential impact on consumer wealth, as well as high inventory levels. O’Reilly Automotive, along with AutoZone (NYSE:AZO), is recognized for its defensive nature and prospects for market share growth. The analyst expects O’Reilly to manage tariff-related price increases due to its non-discretionary demand, suggesting that the company’s full-year guidance has minimal downside risk and might even be surpassed, with optimism towards market share gains in fiscal year 2025.
In other recent news, Restoration Hardware has been the focus of multiple analyst updates and strategic developments. The company is expected to release its fourth-quarter earnings report soon, with Citi analysts predicting a potential shortfall in earnings per share due to a competitive pricing environment, although they anticipate a sales outperformance. Meanwhile, TD Cowen raised its price target for Restoration Hardware to $510, citing a positive outlook for the company’s financial performance, with a notable increase in their revenue forecast for 2025. Stifel remains optimistic, reiterating a $500 price target and highlighting the company’s potential for growth through demand trends and gallery expansions.
Morgan Stanley (NYSE:MS) upgraded its rating to Overweight, raising the price target to $530, driven by expectations of a positive turning point for Restoration Hardware’s long-term fundamentals. Telsey Advisory Group adjusted its price target to $420 but maintained an Outperform rating, noting the company’s double-digit growth in demand and strategic initiatives like new store openings and a new vertical launch in 2025. Restoration Hardware’s efforts in launching new product collections and reducing tariff risks by shifting sourcing away from China have been positively received.
The company’s strategic moves, including international expansion and the introduction of new products, are being closely monitored by investors and analysts. Despite varying price targets, the overall sentiment remains positive, with analysts focusing on Restoration Hardware’s ability to execute its growth strategies amidst broader economic challenges. As the company prepares to release its earnings, these developments will be crucial indicators of its financial health and future trajectory.
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