RH: Longbow initiates Buy

Restoration Hardware Holdings Inc RH share have plummeted 53 percent year-to-date, and are currently trading around their 52-week lows of $35. Longbow’s Mark Rupe initiated coverage of the company with a Buy rating and a price target of $55. The analyst mentioned that although Restoration Hardware faces near-term headwinds, these are outweighed by its long-term opportunities.

The current share price levels give investors exposure to a company that has “a significant runway of sales and earnings growth,” analyst Mark Rupe commented.

Strengths

While Restoration Hardware is a luxury home furnishings brand, and has significantly expanded its product offering in recent years, the company is in the initial stages of transforming its real estate portfolio, Rupe said. He added, “We see accelerating square footage growth as a solid contributor to growth in upcoming years.”

Against the backdrop of aggressive price competition, Restoration Hardware has moved from traditional product-based promotions towards “a set discount strategy more akin to the high-end interior design trade,” the analyst said. He expects this shift to improve price transparency and boost margins. Moreover, RH Modern in-stocks are expected to continue to improve.

Attractive Stock Valuation

Restoration Hardware’s shares trade about 20 percent below its peer group and are 15 percent below their May 2013 levels when the company’s earnings were half of the current levels, Rupe noted.

“We believe at current price levels investors have an opportunity to pay a market multiple on 2016 earnings for a company that has the potential to grow earnings over 50% in the next few years,” the Longbow report added.