RH's Long-Term Potential Is 'Most Intriguing' In Retail, Says Morgan Stanley

Morgan Stanley analyst Simeon Gutman reiterated an Equal-Weight rating on the shares of RH RH and raised the price target from $260 to $355.

The analyst said the stock has rallied about 40% since the Q1'23 earnings based on expectations for a top-line beat in Q2'23 and a pickup in share repurchases.

The sheer magnitude of share repurchases in Q2 and the short period in which they occurred is being interpreted by the market as a clear vote of confidence top-line trends are inflecting and key investments are gaining momentum, observed the analyst.

The analyst warned that an upside on Q2 sales may reflect a low bar, rather than underlying trends improving.

The analyst is less tempted to be the buyer of the stock at this level due as a better-than-expected Q2 is largely priced in, against RH's historical average 12.5x EV/EBITDA multiple, the stock is pricing in $800 million in fully adjusted '24 EBITDA.

The analyst continues to view RH as among the most intriguing stories in all of Retail. Longer-term, RH has the potential to transform its sales base/margin structure more than any other company in the analyst's coverage.

The analyst's primary holdback on the stock has been path risk given RH's cyclicality and category reversion, which made the '23 setup uncompelling. 

Price Action: RH shares are trading higher by 4.11% at $380.20 on the last check Friday.