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Investing.com -- Goldman Sachs upgraded Ralph Lauren Corp (NYSE:RL) to “Buy” from “Neutral,” saying the stock’s recent volatility presents an opportunity to invest in a high-quality brand with long-term earnings power and free cash flow at an attractive valuation.
“We believe improving execution and building brand momentum is set to drive additional market share capture opportunities and margin expansion,” Goldman said in a note. Brokerage also highlighted “broad-based geographic growth and idiosyncratic drivers of margin expansion providing stronger visibility to earnings growth ahead.”
Ralph Lauren has limited exposure to some of the key risks currently weighing on the sector, including tariffs, a slowdown in department store traffic, and concerns about lower-income consumers.
Discretionary sector navigates heightened market volatility and concerns about consumer health, with recent weakness.
“We recognize the macro has dominated the micro in recent trading sessions, and the level of uncertainty remains elevated regarding the health of the consumer and ongoing geopolitical uncertainty,” Goldman said.
But Goldman views this as an opportunity to “lean into high-quality stocks with long-term earnings power and FCF at an attractive valuation,” adding that Ralph Lauren fits this profile.
Goldman also analyzed stock-specific reactions to potential recessionary or slowdown scenarios, suggesting that defensive positioning in the off-price sector could offer opportunities, particularly for “Buy-rated TJX”
Beyond off-price, Goldman prefers “quality brands with momentum and favorable secular tailwinds,” noting that sectors such as athletic wear and handbags tend to outperform during periods of market volatility.
The brokerage expressed caution toward low-profitability growth stories, saying that “competitive dynamics and a weak macro can drive sharper negative revisions to sales and profit levels and drive elevated leverage concerns, even if valuations appear cheap vs. historical levels.”