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Bull of the Day: RH (RH)

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Shares of RH (RH - Free Report) , formally Restoration Hardware, have plummeted recently, but the company’s bottom-line estimates appear strong. RH’s plans to revamp its stores and its business model also look poised to pay off.

Overview

RH saw its bottom line soar from $0.65 per share in the year-ago period to post adjusted second-quarter earnings of $2.05 per share. This crushed our Zacks Consensus Estimate of $1.74 per share. The firm also raised its fiscal 2018 earnings guidance.

Investors were displeased to see RH fall short of quarterly revenues estimates. However, the Corte Madera, California-based company’s comparable brand revenues climbed 5%.

On top of that, RH’s long-term outlook appears solid based on the success of its transformation into a more membership-based retailer, where consumers pay an annual fee for 25% savings on all full-priced items and an additional 20% on all sale items. The company has also slowly tried to become a kind of high-end club that offers a more complete brick-and-mortar retail experience. This includes new restaurant and cafe offerings.

Plus, the company said it has streamlined its distribution process and has sold more goods at full price. “Due to the earnings power of our new operating model, we are also updating our previous long-term targets,” CEO Gary Friedman said in a September company statement.

Looking ahead, RH said it sees a “clear path” to $4 to $5 billion in North American revenues. In total, the company thinks its international growth could see it become a $7 to $10 billion dollar global brand. The company also reaffirmed its long-term revenue growth targets of 8% to 12% and earnings growth of 15% to 20% annually.

Price Movement

Now that we have covered RH’s business and some of its overarching outlook, it’s time to take a peek at its stock price performance over the last few years. We can clearly see that RH stock has come in well above its industry’s average—which includes Pier 1 (PIR - Free Report) and Williams-Sonoma,(WSM - Free Report) —over the last three years.

It is also worth noting that RH has soared over 260% in the last 24 months. This tops the S&P 500’s roughly 28% climb and beats its industry’s 12% jump. However, 2018 has not been as kind to RH. Shares of RH closed regular trading Wednesday at $104.28 per share, down roughly 36% from their 52-week high of $164.49 per share.

 

On top of that, RH is currently trading at 14.4X forward 12-month Zacks Consensus EPS estimates, which marks a huge discount compared to its two-year high of 37.6.X. RH also only rests just slightly above its 24-month low of 12.5X. All of this is to say that RH stock appears relatively inexpensive at the moment.

Outlook & Earnings Trends

Looking ahead, RH’s Q3 revenues are projected to climb by 6.8% to hit $632.74 million, based on our current Zacks Consensus Estimate. The company’s fiscal 2018 revenues are expected to reach $2.51 billion, which would mark a 3% jump. RH’s fiscal 2019 revenues are projected to pop over 8%.

Meanwhile, at the other end of the income statement, RH’s adjusted quarterly earnings are expected to surge 21.2% to touch $1.26 per share. More impressively, the firm’s adjusted full-year EPS figure is projected to skyrocket roughly 150%.

We can also see that RH’s earnings revisions have trended almost completely upward over the last 60 days. What’s better, the most revisions are for fiscal 2018 and 2019. This means RH’s earnings growth isn’t expected in isolated quarters, but on the whole.

 

 

Bottom Line

RH’s positive earnings revision trends help it earn a Zacks Rank #1 (Strong Buy) at the moment. The firm also rocks “A” grades for Value, Growth, and Momentum in our Style Scores system. Lastly, RH has topped quarterly earnings estimates by a wide margin over the trailing three quarters.

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Williams-Sonoma, Inc. (WSM) - free report >>

Restoration Hardware Holdings Inc. (RH) - free report >>

Pier 1 Imports, Inc. (PIR) - free report >>

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