On Thursday, Telsey Advisory Group adjusted its outlook on Restoration Hardware (NYSE: RH (NYSE:RH)), lifting the price target to $500 from the previous $485 and changing the stock's rating to Outperform, which marks an upgrade from Market Perform. Currently trading at $396.39, RH has demonstrated remarkable momentum with a 79.76% surge over the past six months. According to InvestingPro analysis, the stock appears overvalued at current levels, though momentum remains strong with 15 analysts recently revising earnings estimates upward.
The upgrade was influenced by Restoration Hardware's stronger-than-anticipated demand trends, as observed in the third quarter of 2024 and continuing into the fourth quarter. The company reported a total demand increase of 13% in the third quarter of 2024 and an 18% rise in November. Early data indicates that demand in December has further accelerated. With a market capitalization of $7.37 billion and trailing twelve-month revenue of $3.1 billion, RH maintains strong market presence. Discover more detailed insights and 10+ additional ProTips with InvestingPro's comprehensive analysis.
The analyst's optimism regarding Restoration Hardware is also rooted in the company's potential for market share gains at a time when the broader furniture demand remains subdued. This outlook is supported by the company's introduction of new products, signs of recovery in the housing market, and the planned opening of new stores in key European markets. The company maintains healthy liquidity with a current ratio of 1.43, indicating sufficient resources to fund its expansion plans.
For 2025, Telsey anticipates that Restoration Hardware could achieve mid-teens sales growth. This projection is coupled with an expectation for the operating margin to expand to approximately 15% in 2025, up from 11.6% in 2024. This anticipated growth is despite the potential for increased pressure from higher depreciation.
The revised price target of $500 is based on applying a price-to-earnings (P/E) multiple of around 38 times to the revised 2025 earnings per share estimate of $13.20. This valuation multiple is notably higher than Restoration Hardware's historical five-year forward P/E multiple of approximately 20 times.
Nonetheless, the analyst justifies the higher multiple by citing the overall higher market valuations and the accelerating demand trends specific to Restoration Hardware. The stock's one-year forward P/E is around 40 times.
In other recent news, Restoration Hardware has been the center of attention among several financial firms. Loop Capital raised its price target on the luxury home furnishings retailer's shares to $450 from $320, maintaining a Hold rating. The firm highlighted the company's strong third fiscal quarter performance and its substantial investments in merchandise transformation.
Stifel reiterated its Buy rating on Restoration Hardware, citing the shares as undervalued. The firm expressed confidence in the company's ability to grow and outperform, as indicated by recent demand trends and expected improvements in margins and cash flow.
Guggenheim also maintained a bullish stance, raising the stock's price target to $550 from $425 following the company's strong third-quarter performance. The firm anticipates the company's forthcoming product launches will drive peak demand levels over the next 12 to 24 months.
TD Cowen showed confidence in Restoration Hardware as well, raising the stock's price target to $500 from the previous $380. The firm cited strong quarter-to-date demand acceleration as a key factor for the optimistic outlook.
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