On Thursday, CFRA made an adjustment to Ralph Lauren's (NYSE:RL) stock rating, upgrading it from Sell to Hold. The firm also increased its price target for the company's shares from $160.00 to $171.00. The revision reflects CFRA's view that Ralph Lauren is performing well and merits a valuation in line with its historical average.
The upgrade comes after Ralph Lauren's shares have seen a substantial 40% increase since the beginning of the year. The new price target is based on a 15.5 times multiple of CFRA's estimated earnings per share (EPS) for the fiscal year ending in March 2026 (FY 26), which aligns with Ralph Lauren's five-year average forward price-to-earnings (P/E) multiple of 15.6x.
CFRA also revised its earnings estimates for Ralph Lauren, raising the EPS forecast for FY 25 by $0.50 to $10.50 and for FY 26 by $0.50 to $11.00. Despite the positive outlook on the company's execution, CFRA expressed caution, noting that the current forward multiple is at the higher end of Ralph Lauren's three-year range, at 18 times analyst estimates for the next 12 months.
The firm anticipates challenges ahead, expecting continued weakness in the North American market and doubting that the growth rates in Asia and Europe witnessed in recent quarters will persist. Nevertheless, CFRA believes Ralph Lauren will meet its full-year guidance but maintains that this may not be sufficient to sustain the stock's high trading multiples, leading to the decision to upgrade the rating based on valuation concerns.
In other recent news, Ralph Lauren Corporation (NYSE:RL) has reported promising developments. The company started the first quarter of fiscal year 2025 with a 3% increase in total revenue and a 5% rise in retail comps, surpassing expectations. Despite a 4% decline in North American revenue due to planned wholesale reductions, significant growth was observed in Europe and Asia.
BMO Capital Markets maintained its underperform rating on Ralph Lauren, following a meeting with the company's newly appointed CFO and other executives. In contrast, TD Cowen revised its price target for Ralph Lauren shares to $193, maintaining a Buy rating, while Evercore ISI reiterated an Outperform rating and a $195.00 price target.
Ralph Lauren's management team has been focused on achieving growth in Free Cash Flow and improving Returns on Invested Capital. For fiscal 2025, the company projects a low single-digit revenue increase, operating margin expansion of 100 to 120 basis points, and gross margin expansion of 50 to 100 basis points.
InvestingPro Insights
Ralph Lauren's recent performance and CFRA's upgraded outlook are further supported by data from InvestingPro. The company's market capitalization stands at $12.65 billion, with a P/E ratio of 19.32, slightly above CFRA's mentioned forward multiple. This valuation is contextualized by Ralph Lauren's impressive gross profit margin of 67.14% for the last twelve months, underscoring the company's pricing power and operational efficiency.
InvestingPro Tips highlight Ralph Lauren's financial strength and market performance. The company has maintained dividend payments for 22 consecutive years, demonstrating a commitment to shareholder returns. This is complemented by a current dividend yield of 1.63% and a 10% dividend growth over the last twelve months. Additionally, Ralph Lauren's stock has shown strong momentum, with a 77.34% price total return over the past year, aligning with CFRA's observation of the stock's substantial increase.
These insights provide additional context to CFRA's analysis, supporting the view of Ralph Lauren's solid performance while also indicating potential for continued growth. Investors seeking more comprehensive analysis can access 16 additional InvestingPro Tips for Ralph Lauren, offering a deeper understanding of the company's financial health and market position.
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