Industry Strength Leads To RH Upgrade

RH RH, formerly known as Restoration Hardware, received an upgrade on apparent strength in the industry from notable competitors and industry peers.

The Analyst

Gordon Haskett analyst Chuck Grom upgraded RH from Hold to Accumulate and raised his price target from $135 to $172.

The Thesis

A greater appreciation for the company’s internal initiatives alongside multiple positive lateral indicators ahead of the company’s Q2 print in mid-September led to the upgrade.

“Generally speaking, while we admittedly didn’t appreciate all of the efforts at first blush, we’ve always believed in many of the moves CEO Gary Friedman has undertaken, including his focus on a membership model and distinct adherence towards margin stability before accelerating new revenue growth concepts,” Grom said in a note.

A number of positive reports from indirect and direct industry peers suggests the high-end consumer is on solid footing and that the furniture/home decor category remains vibrant, said Grom.

“[S]trength in the home improvement retailers, Home Depot and Lowe’s, against the backdrop of slowing housing data implies households still see value in investing in their homes, as a record bull run with equity markets near all-time highs continues to feed the wealth effect,” Grom said.

The analyst argues that while he isn't early on his RH call and there are still risks to his thesis, he's comfortable with the company’s ability to offset any dilutive effect given multiple financial levers to drive margin expansion through 2021.

Price Action

RH shares were up 3.6 percent to $159.24 at time of publication.

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