Cowen Likes Ralph Lauren On A Pullback Despite Looming Tariffs

Although the trade war still looms, with footwear and apparel companies expected to be particularly affected, one analyst says to buy on the pullback of Ralph Lauren Corp RL.

The Analyst

Cowen analyst John Kernan reiterates an Outperform rating with a $145 price target.

The Thesis

Ralph Lauren’s management remains confident in its progress towards its 2023 targets, but tariffs will likely drive sentiment in the near-term.

Kernan said in a note the stock is undervalued with potential for double-digit EPS growth and multiple expansion into 2021. The company reported a big fourth-quarter earnings beat on Tuesday that saw management announce a double-digit increase in the dividend added $600 million to its share repurchase program in 2020.

The analyst says Ralph Lauren’s assortment and consumer engagement continues to improve, with core styles and icons driving the business, and emerging categories like denim and outerwear outperforming.

Strength in Europe is also offsetting seasonal weakness in North America, he said, posting 11 percent sales growth due to distribution growth within existing wholesale partners and retail same-store sales growth of 5 percent.

Kernan says top-line and operational improvements from a multi phase transformation are expected to produce sales and margin expansion long term, and generate significant cash flow to support cash returns to shareholders in the form of dividend growth and share repurchase.

Price Action

Ralph Lauren's stock is up 1.5 percent Wednesday at $115.64 per share.

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