On Thursday, CFRA revised its stance on Ralph Lauren Corp. (NYSE:RL), downgrading the luxury fashion company's stock to Hold from Buy. This decision was prompted by the stock's significant rally, which has seen a 40% increase since November. Despite the downgrade, CFRA raised its 12-month price target for Ralph Lauren shares from $135 to $150, which is based on a forward P/E multiple of 15.8 times their fiscal year 2025 (ending March) earnings per share (EPS) estimate. This valuation is slightly higher than Ralph Lauren's five-year average forward P/E multiple of 15.5x.
The financial services firm has maintained its EPS estimates for fiscal years 2024 and 2025 at $9.00 and $9.50, respectively. Ralph Lauren's performance in the third quarter was strong, with normalized EPS at $4.17 compared to $3.35 in the same period last year, surpassing consensus estimates by $0.62. Revenue for the quarter reached $1.93 billion, which was $64 million above estimates.
Ralph Lauren's revenue growth varied by region in the third quarter. North America's revenues remained unchanged year-over-year, while Europe saw an 11% increase, and Asia, benefiting from China's reopening, experienced a 16% increase. Additionally, the company's adjusted gross margin for the quarter expanded by 120 basis points year-over-year to 66.4%. This improvement was attributed to growth in average unit retail (AUR), reduced freight costs, and a favorable mix of sales channels and geographic regions.
The company has reiterated its full-year forecast, expecting low-single-digit revenue growth and a slight margin improvement from the previous year. CFRA's decision to downgrade Ralph Lauren's stock was based on the current valuation, suggesting that the shares are now trading above their typical five-year forward P/E multiple. While the firm remains positive on Ralph Lauren's prospects, it anticipates that the stock will level off as it assimilates recent gains.
InvestingPro Insights
As Ralph Lauren Corp. (NYSE:RL) navigates through its fiscal year with strong quarterly performances, InvestingPro data and insights provide a deeper dive into the company's financial health and stock performance. With a market capitalization of $10.82 billion and a P/E ratio standing at 18.37, the company showcases stability in its valuation. Notably, Ralph Lauren's gross profit margins remain impressive at 65.3%, underlining the company's efficiency in managing its production costs and maintaining profitability.
InvestingPro Tips highlight that Ralph Lauren has not only managed to raise its dividend for 3 consecutive years but has also maintained dividend payments for 21 consecutive years, demonstrating a commitment to returning value to shareholders. Furthermore, analysts have revised their earnings upwards for the upcoming period, indicating optimism about the company's future performance. The stock's recent trading near its 52-week high, with a price percentage of 98.86%, reflects strong investor confidence and market sentiment.
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