UBS Comments On Ralph Lauren: Foreign Exchange Matters, Cycle Update Matters More

Michael Binetti of UBS on Monday commented in a note that Ralph Lauren Corp's RL foreign exchange matters to the investment community, but its investment cycle update matters more.

Binetti expects Ralph Laurn to pre-guide its fiscal 2016 when it reports its third-quarter results. In advance, the analyst has lowered his fiscal 2016 estimates due to further weakness in the euro. Full year earnings per share is now estimated to be $9.35 (from a previous $9.50) based an assumption of 1.10 USD/EUR rate for the fiscal year.

“Ralph Lauren's stock has pulled back -10 percent over the last month suggesting foreign exchange is at least partially reflected,” Binetti wrote. “We believe the more important update is whether Ralph Lauren comment that fiscal 2016 is the year when its major investment cycle can start to diminish and EBIT margins can start to leverage organically – even if reported EBIT margins could compress again due to foreign exchange.”

Binetti adds that if organic leverage can re-start in fiscal 2016, it will allow investors with a longer horizon to see a path to a “solid” multi-year stock return.

Shares are Buy rated with a price target lowered to $185 from a previous $188.