Restoring A Hold On RH, Deutsche Bank Asks: Where Does The Stock Go From Here?

Less than a month after Deutsche Bank upgraded RH RH to Buy, the firm has downgraded the stock back to Hold. But while Deutsche Bank’s quick reversal may seem like a flip-flop, analyst Adam Sindler said on Friday that the stock’s outperformance forced the firm’s hand.

On July 23, Deutsche Bank upgraded RH from Hold to Buy. At the time, the stock was trading at around $57, and Deutsche Bank set a price target of $66. In the past month, however, shares have surged higher by more than 30 percent, blowing past Deutsche Bank’s price target to above $75.

“While it’s not common practice for us to change a rating so close to an upgrade, we do not see this as a common situation,” Sindler wrote in the downgrade note (see his track record here).

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He pointed out that RH shares are up 15 percent in the past week alone.

“So we are ‘taking a break from the summeR Heat’ [emphasis kept] and downgrading shares of RH from Buy to Hold, on valuation.”

At the same time, the firm boosted its price target from $66 to 80.

Nothing about the firm’s thesis on RH has changed, and Sindler said he still believes RH’s core business has stabilized. However, at the stock’s current share price, he would need to see evidence of further earnings upside from the company.

Deutsche Bank is currently calling for fiscal 2017 EPS of $2.13 and fiscal 2018 EPS of $3.59.

Investors looking for upward revisions of these numbers should watch the performances of the RH Card and RH Modern in upcoming quarters, Sindler wrote.