RH Shares Higher On Impressive Guidance, Citigroup Upgrade

Home furnishing retailer RH RH announced third quarter adjusted EPS and adjusted revenue guidance on Wednesday that landed ahead of the consensus expectations.

RH announced its preliminary fiscal 2018 outlook, which calls for adjusted net income of $125-145 million and net revenue of $2.58-2.62 billion, also above Street estimates.

Citigroup upgraded shares of RH following the report. 

The Analyst 

Citigroup analyst Geoffrey Small upgraded shares of RH to Buy and increased his price target from $76 to $111.

The Thesis

RH's 2018 guidance alleviated many of Citigroup's concerns, Small said. The company's efforts to differentiate in the premium furniture segment is helping sales growth and margin improvement, he said. 

RH's recent attempt to simplify the supply chain has generated "sizeable" cash, according to Citi.

"We see a long runway for growth from these elements and expect the stock will also benefit int he near-term from a short squeeze," Small said. 

See also: RH Gets The Catalyst The Sell-Side Was Looking For

About 8.7 million shares of the company are shorted by investors, according to Shortsqueeze.com. The short interest ratio is at 54 percent, and it would take 7.9 days to cover the shorted shares.

The market has shown willingness to apply a premium to retailers that post outsized sales and earnings growth in today's environment, Small said. "RH clearly falls into that camp," he said. 

The Price Action

At the time of writing, shares of RH were soaring 22.26 percent to $101.84. The stock has been up a whopping 226 percent year-to-date.

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