Encouraging Signs Boost Outlook for Ralph Lauren, Levi's: Goldman
Investing.com
Published Dec 10, 2020 11:51AM ET
By Christiana Sciaudone
Investing.com -- Apparently there are still some of us going around in polo shirts and jeans, and not just lounging in sweats.
Ralph Lauren (NYSE:RL) and Levi's (NYSE:LEVI) rose 2.4% and 3.4%, respectively, after Goldman Sachs (NYSE:GS) upgraded both.
Analyst Alexandra Walvis lifted Ralph Lauren to buy from sell, with a price target of $141, from $69. She upped Levi's to buy from sell with a price target of $23 from $11, according to StreetInsider.
Walvis said she sees "several reasons" to become more constructive on Ralph Lauren after weak momentum and revenue and margin headwinds, accelerated by the pandemic.
"While we remain guarded on underlying brand momentum, we acknowledge several management initiatives to elevate the brand and believe RL will benefit from an inflection in the overall apparel category," Walvis wrote in a note. The company has also proactively pulled out of low quality wholesale distribution, a process accelerated by the pandemic, and its direct to consumer ecommerce channel has inflected to profitability.
Next year should be margin-accretive growth and something of a rebound in wholesale.
On the jeans-front, the analyst had been similarly cautious.
But Levi's "has delivered on several initiatives since the emergence of the COVID-19 pandemic (such as discretionary cost savings), and importantly the company has seen an acceleration in growth in its ecommerce business (e.g. DTC ecommerce grew 52% in the most recent quarter) which is now profitable," Walvis wrote.
The company provides an attractive risk/reward as its shifts sales to the DTC channel and continues to diversify its U..S wholesale business to higher-growth partners, driving stronger sales, margins, and returns, Walvis said.
Ralph Lauren shares are at their highest since March and before the dreadful year that is 2020 truly took hold. Levi's shares, trading around $20.86, are making their way back to their 2019 opening price of $22.22.
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