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Fundamental analysis: Ralph Lauren (#RL)

Ralph Lauren Corporation is an American fashion company that produces products ranging from the mid-range to the luxury segments. They are known for apparel, marketing and distribution of products in four categories: apparel, home, accessories and perfumes.

UBS analysts recently confirmed a positive rating for the Ralph Lauren #RL stock: a judgment based both on improving fundamental data and on an overall positive "sentiment" for the stock.

Ralph Lauren published the results for the fourth quarter on May 20, 2021: they were positive however the stock lost almost 10% on the day.

Despite the strong bearish move, we believe Ralph Lauren is well positioned for medium-term upsides.

⚡️Growth factors:

  • The company is expected to benefit from a surge in spending and fiscal stimulus, as well as the lifting of restrictions.

  • UBS increases 2022 earnings per share forecast to $ 8 (+ 19% from current $ 6.71)

  • Another growth factor could be a possible agreement with the luxury giant Kering

  • Sales of $ 1.29 billion were up 1% from last year, exceeding expectations of $ 1.21 billion.

  • Ralph Lauren's global digital commerce sales increased 52% year-over-year.

  • Ralph Lauren will resume paying dividends starting in the first quarter of 2022: The dividend is approximately 68.8 cents per share, or $ 2.75 per share per year.

  • For fiscal year 2022, the company expects sales to increase 20% to 25% compared to 2021.

  • They also forecast an increase in operating margins of around 11%, up by 6.2 percentage points compared to the previous year.

📖 Financial indicators:

  • Profitability vs market: RL is expected to become profitable in the next 3 years, a growth considered above the market average

  • Revenue vs Market: LR revenue (9.2% per year) is expected to grow faster than the US market (9.1% per year)

  • Short-Term Liabilities: RL's short-term assets ($ 4.2 billion) outweigh its short-term liabilities ($ 1.6 billion)

  • Long-Term Liabilities: RL's short-term assets ($ 4.2 billion) outweigh long-term liabilities ($ 3.7 billion)

  • Debt level: RL's debt-to-equity ratio (62.7%) is considered to be high

  • Debt coverage: RL's debt is well covered by operating cash flow (23.3%)

  • Notable Dividend: RL's dividend (2.27%) is more than the bottom 25% of dividend payers in the US market (1.27%)

  • Dividend Growth: RL's dividend payments have increased over the past 10 years

Buy price *: $ 115 - $ 106

Target price: $ 170

Stop loss at $ 90.00

* this price range makes it possible to maintain a minimum return /risk of 2.2

OTB Global Investments

24 May 2021

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