Stephens Upgrades Ralph Lauren To Overweight On Valuation, Margin Forecast

In a report published Monday, Stephens analyst Rick Patel upgraded the rating on

from Equal-Weight to Overweight, while establishing a price target of $155, following the pullback in the company's shares. Ralph Lauren's shares have plummeted 30 percent so far this year. Analyst Rick Patel believes that the factors exerting pressure on the company's operating performance in F2016 "are well understood and reflected in the stock." Patel cited the factors impacting operating performance as: Currency, sluggish tourist sales, and investment spending. Patel expects Ralph Lauren to continue to invest in systems initiatives, believes that "the heavy lifting will be done after this year." The EPS estimates for 2016 and 2017 are at $7.00 and $8.10, respectively. While expecting growth in F2016 to be "depressed," Patel expects the company's EPS growth to accelerate in F2017, with moderating FX headwinds, decelerating investment spending, and the realization of more expense savings. "In recent history, RL's op. margins reached 16.5% in F2013, and we see no structural reason why this can't be achieved again over the LT," Patel added. In the report Stephens noted, "Investment positives include: FX headwinds abating, slower expense growth, $100 mil. savings plan, and multiple sales driving initiatives (Polo women's, Polo Sport, Polo retail, accessories, e-commerce). Overall, we see sequential improvements to sales and earnings throughout F2016 and a pathway to better margins in F2017." While stating that it was early, Patel wrote that the "depressed stock" offered "a good buying opportunity."