Shares of Polo Ralph Lauren (RL) have risen 36% this year, and is trading at nearly 22 times earnings, convincing Citi analyst Kate McShane that its time to reconsider the stock. McShane downgraded the stock to Hold from Buy.
She still sees upside for Ralph Lauren, expecting shares to reach $160 per share from current prices closer to $145. But beyond that, the apparel-maker’s valuation would really have to stretch.
“We continue to view Ralph Lauren as a best-in-class brand with a significant runway internationally for growth. Our downgrade reflects that a lot of the near-term positive news such as market share gains and success in further penetrating the international market are already priced in. We could potentially become more constructive on the name if the stock pulled back to about $135, or if we thought EPS could accelerate meaningfully in FY13 from a high teens/low 20% level, all else equal.”
Instead of Ralph Lauren, McShane recommends investors look at Philips Van Heusen (PVH), which “offers compelling global secular growth, benefits from pricing leverage, has power-brands Calvin Klein and Tommy Hilfiger, Tommy cost savings, and increasing sourcing visibility, in our view.”
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