Ralph Lauren: A Suit-able Choice for the Year Ahead

When analyst opinions conflict with reality, base your decisions on the facts. Contrary to what the experts were projecting, Ralph Lauren beat estimates on both EPS and revenues in its fiscal fourth quarter, which ended March 31. A 9% rise in the quarterly dividend rate, to 75 cents, was just the cherry on top. How bad have analysts been in predicting RL's results? Very. They were too low by major amounts in each of the quarters during fiscal 2021. Why even listen to them at all with a track record that poor? Look at the facts, however, and you'd have seen what a bargain RL had become recently. 2021's EPS eked out close to all-time record profits per share of $8.32, despite less than optimal conditions in the retail trade. Right before the year-end report the shares hit a 2021-2022 nadir of $86.55, down from almost $136 in February and an all-time peak of $192 way back in 2013. Let that sin k in for a minute. The same shares that commanded $192 on $8.43 in EPS were available a few days ago at more than a $105 per share discount while earning just 10 cents per share less. How did that happen? P/E compression. At $192 in 2013 RL sold for 22.8-times forward earnings. At $86.55 RL was offered for less than 10-times fiscal 2022's estimate. That was the cheapest valuation for high-quality RL during the entire decade since 2012. Assume a slightly lower than typical 16.5-times multiple and RL could easily be north of $143 by this time next year. That is far from an upper limit. RL topped out above $182 during each of the four years 2012 through 2015 on generally lesser fundamentals then are now in play. Yahoo Finance called RL undervalued and very conservatively projected it would rebound to about $125 by this time next spring. Why do I call that conservative? That goal price represents only 13-times Yahoo Finance's fiscal 2023 estimate, which is already lower than Value Line's projected EPS for RL. Even so, reaching that modest goal over 12-months would deliver a very acceptable 40.5% in total return. Quantitatively oriented Fast Graphs notes RL's long-term average P/E has been 17.5-times. Its projected Mar. 31, 2023 target price is thus $149.09. That suggests 64% in upside potential plus the juicy 3.30% yield. Research from Morningstar calls RL a 4-star, out of 5, buy. They deign to provide year-ahead goal prices but do let us know what they think is present-day fair value. As of May 25 that figure sat at $120 implying 32% upside could take place quitter rapidly. Rumors that, Retail is dead and that these shares should be avoided is keeping many people from buying outstanding values based on the facts. Nordstrom just blew through all analyst estimates and surged. So did my favorite shoe company Caleres , which shot through EPS estimates and revenue estimates and raised forward guidance. CAL surged by over 27% on Wednesday and still sold for less than 6.5-times its new midpoint guidance for fiscal 2022. Don't trust services, which issue confusing fuzzy advice based on opinion. Go with facts, which are irrefutable and can be compared with historical data. Buy shares, which sell for well below their own average multiples. They are more than likely going to come back to those over time. Obtaining higher-than-normalized yields on dividend paying shares like RL is also a good clue to their cheapness. RL's forward yield is now 51.9% above typical. Call me crazy, but I've been buying Ralph Lauren clothes for decades now. They fit great, never go out of style and are ultra-high quality. I'm still wearing some RL products I bought in the 1970s and getting compliments on them.

Ralph Lauren: A Suit-able Choice for the Year Ahead

Ralph Lauren shares should wear well -- just like the company's clothes.

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