RH may be poised for big gains ahead, according to Morgan Stanley. Seeing the luxury home furnishing company in the “early stages of a positive inflection,” analyst Simeon Gutman upgraded it to overweight from equal-weight and hiked his price target by $95 to $530, which implies 28% upside from Friday’s close. This comes after a strong year for RH. The stock outperformed the S & P 500 , gaining around 35%. In the past six months, shares have soared more than 50%. RH 6M mountain RH, 6-month While Gutman noted that certain investments were dialed back during the Covid-19 pandemic, an uptick in both the frequency and intensity of new collection launches in the fourth quarter of 2024 and into 2025 could spell good news for the stock. “New collection launches are resonating with customers, as RH generates its own demand with a stepped-up cadence of product innovation and sourcebook mailings,” the analyst wrote in a Monday note to clients. “RH’s re-upped demand creation spend during ’23 and ’24 is finally converting into effective sourcebook mailings, new collection launches and customer orders … heading into ’25.” Additionally, Gutman pointed to the “wealth effect” – the idea that people spend more when they become richer – among high income households in the wake of a post-pandemic reversion cycle. Along with that, he thinks the company’s operating leverage is “underappreciated” by the market and could surprise to the upside. “While mortgage rates still remain too high to allow a meaningful recovery in housing turnover, reflation in asset prices and wealth effect have propelled household net worth to new highs – particularly amongst the high income households that typically comprise RH’s customer base,” Gutman added. The home furnishings category has the most potential for improvement, he said. In that area, Gutman projects 3.8% category growth this year. Notably, the analyst also expects the threat of President-elect Donald Trump’s tariff plans – which would mean an additional 10% tariff on Chinese goods , as well as a 25% tariff on goods from Mexico and Canada – is “mitigated,” given that RH has moved most of its sourcing away from China and is in the process of altering its exposure to Mexico. Shares rose more than 1% in the premarket following the call. Wall Street is pretty evenly split on the retailer. According to data from LSEG, 11 out of the 22 analysts covering the name have a strong buy or buy rating. Conversely, nine have moved to sidelines with a hold rating, and two have an underperform rating.
