The Ratings Game: ‘Suburban sprawl’ will continue to benefit luxury furniture retailer RH: Cowen



gained momentum during COVID-19, and analysts expect that the home retailer will continue to thrive through the year as luxury homebuying and suburban sprawl continues in 2021.

“Overall, given the ongoing housing strength combined with a longer furniture purchase cycle, we anticipate demand can remain elevated for at least the remainder of 2021,” wrote Cowen analysts led by Max Rakhlenko.

“Further, we anticipate suburban sprawl will continue over the longer-term which bodes well for RH as 80% of revenue mix is in the suburbs (12% second homes, 8% urban) and management pointed to 2X square footage increase when shoppers move out of cities into the suburbs, suggesting an opportunity to significantly increase sales,” the analysts wrote.

Cowen rates RH shares outperform and raised its price target to $600 from $570.

See: Mortgage rates soar to highest level since June 2020 — so why is the housing market still hot?

Also: RH shares rise sharply as demand for luxury furniture boosts revenue, profit

RH stock jumped 6.4% in Thursday trading after reporting fourth-quarter earnings and revenue that beat expectations.

The stock has skyrocketed 387% over the past year while the benchmark S&P 500 index

is up 57.4% for the period.

RH is among a number of other home goods retailers that have seen shares soar over the past year, including Wayfair Inc.

(up 545.8% ), At Home Inc.

(up 1,119.4%) and Williams-Sonoma Inc.

(up 299%).

Home retailers have thrived during COVID-19 as consumers shifted their spending on things that will make spending so much more time at home more comfortable and functional.

There are investor concerns that as vaccines continue to roll out, consumers will once again shift their spending, this time back to vacations, restaurants, dressing for parties and other events that will get them out of the house.

Read: Williams-Sonoma reaches a record close, though analysts question how long the good news will last

However, analysts are confident that RH’s luxury status will give the company momentum through 2021.

“We view the company’s guidance as conservative given the housing market dynamics where larger and luxury homes are the hottest part of the market and drive the highest furniture spending levels, as well as RH’s plans to start advertising again in 2H21 and launch RH Contemporary (which will include one of the largest new line offerings to-date for the company) in 2H21,” wrote Wedbush analysts led by Seth Basham.

RH is guiding for first-quarter revenue growth of at least 50%. The FactSet consensus is for first-quarter revenue of $735.5 million, suggesting a 52.3% jump.

Wedbush rates RH stock outperform with a $550 price target, up from $520.

In addition to the RH Contemporary collection, RH is launching its first hotel, or Guesthouse, in New York City in the fall, with a second coming to Aspen, Colo., in 2022. The Aspen location will also have the first RH Bath House & Spa.

Aspen will also get RH Residences, the company’s leap into the housing market.

Watch: 3 major changes in the hotel industry due to COVID-19

Four new shops, or “design galleries,” are coming to locations nationwide including Jacksonville, Fla., and San Francisco. And RH England and RH Paris are set to launch in 2022, marking the company’s international expansion.

“We ended 2020 with just less than $3 billion in net revenues and believe the data supports the RH brand reaching $5 to $6 billion in North America and $20 to $25 billion globally,” wrote Chief Executive Gary Friedman in a letter that accompanied the results.

“While 2021 will surely be a tale of two halves, the fact that we have a booming housing market, a record stock market, low interest rates, the expectation of a rebound in the economy and jobs market, combined with the recent further acceleration in our demand trends, has us feeling more rather than less optimistic that it might just turn out to be two very good halves.”

Wells Fargo rates RH stock overweight with a $575 price target, up from $525.

“RH has successfully transformed itself from a sleepy mall-based retailer to an innovative, multi-channel luxury brand with experience-focused design galleries, a member-based revenue model and emerging hospitality offering,” analysts wrote.

“We believe RH’s potential remains early innings and that its long-term story is amongst the most intriguing in our hardlines coverage universe.”

JPMorgan also raised RH’s price target to $610 from $570 and maintained its overweight stock rating.

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