Citi: Time To Buy Ralph Lauren

• Shares of Ralph Lauren Corp. RL have declined almost 42 percent year-to-date.
• Citi’s Kate McShane has upgraded the company from Neutral to Buy, while lowering the price target from $134 to $125.
• While the stock is trading “close to the bottom of its valuation range,” McShane believes that the cost savings expectations could prove conservation and that topline growth would improve in the longer term.

The stock is currently trading at a discount of 35 percent to its “global secular growth peers,” having declined 42 percent year-to-date, as compared to the S&P decline of about 6 percent.

On the other hand, the company has guided to cost savings pf $100 million, with most of its coming in FY17, driven by Ralph Lauren’s restructuring efforts, including a reduced work force, store closure, SAP implementation and a revamped organizational structure.

While the Street expects a 9 percent increase in operating income growth, McShane expects 9 percent to be the worst-case scenario, with the best cost savings scenario leading to 14.5 percent operating profit growth.

McShane also expressed optimism regarding the company’s topline initiatives, stating that “there are a number of initiatives that will drive better top-line growth trends over the long term, including: Polo Sport, Polo Women’s, a new Contemporary offering, Chaps, accessories and international markets & e-commerce.”

In addition, the focus of the restructured management team on brand groups is expected to drive faster growth. Ralph Lauren “is focused on more full-priced selling which should push AUR’s higher and preserve brand equity, which is positive for the brand long term,” McShane added.