Please ensure Javascript is enabled for purposes of website accessibility

Earnings From RH Have Analysts Raising Price Targets

By Howard Smith – Sep 10, 2020 at 8:29AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The luxury home furnishings retailer beat estimates and doubled cash flow.

Luxury furnishings retailer RH (RH -0.70%) reported earnings that beat consensus estimates on both the top and bottom lines, and said demand and margins were strong. 

The company formerly known as Restoration Hardware reported revenue that was ahead of the previous-year period, even with the challenges of the COVID-19 pandemic. Net income also increased 54% for this second quarter ending Aug. 1, 2020. 

home office furniture from RH

Image source: RH.

Along with strong demand has come high margins. RH said that its adjusted operating margin increased from 14.9% last year to a record 21.8% in this year's second quarter. The company said it now expects to surpass 20% adjusted operating margin if revenue grows more than mid-single digits, and now sees "a long term path to 25% adjusted operating margins."

The strong earnings report has analysts piling up price-target increases. Prior to today's surge in share price, RH shares were up 50% since the start of the year. Cristina Fernandez at Telsey Advisory Group raised her price target from $345 to $450 per share after the report. Other analysts at UBS, Wedbush, and Baird also raised their price targets to between $380 and $390. 

RH chairman and CEO Gary Friedman said demand accelerated throughout the quarter, and remains strong in September. He credits the positive trends from "efforts to elevate product design and quality," as well as developing its network of designers and manufacturers. 

Friedman said he believes that elevated spending on quality home furnishings will persist through 2021 and possibly beyond. "This is a time to be defined by our vision, not by a virus," he said. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.