Polo Ralph Lauren Corp (RL) recently extended its impressive earnings surprise streak as retail figures remain strong in the face of high unemployment.
Earnings estimates are on the rise, pushing RL to a Zacks #1 Rank (Strong Buy) and there is still plenty of upside moving forward.
Company Description
Polo Ralph Lauren makes apparel, home furnishings, accessories and fragrances. Brands include the iconic Polo by Ralph Lauren, American Living, Chaps and several others.
Great Quarterly Results
On Nov 10 Polo Ralph Lauren reported second quarter results that included an 11% increase in revenue, to $1.5 billion. Net income rose 15%, to $205 million.
Earnings per shares came in 41 cents ahead of expectations, at $2.09. While this was an earnings surprise, it has become the norm for Polo Ralph Lauren, having topped estimates each quarter since mid 2007.
Estimates Jump
After Polo Ralph Lauren provided the results and guidance, analysts unanimously raised their full-year estimates. The Zacks Consensus Estimate for fiscal 2011 is up 29 cents $5.25.
Forecasts for next year rose 25 cents, to $5.97. These revisions came even after analysts raised just prior to the earnings release. Annual growth rates are now 9% and 14%, respectively.
Retail Doing Well
Earlier this week we saw a surprisingly strong retail report. Retail sales were up 1.2% in October, better than the consensus of 0.7%. That is also after September was revised upward. So, the consumer is proving to be quite resilient despite the high unemployment rate.
Valuations and Comparisons
Much like its products Polo Ralph Lauren is trading at a bit of a premium. But at 17 times next year’s estimates, it is not high enough to avoid, especially given the earnings momentum.
Polo Ralph Lauren has an ROE of 17.9%, coming in ahead of the 15.7% that the industry average. The company more than doubles its peers’ net profit margin, 10.5% vs. 4.8%.
The Chart
The overall estimates trend is absolutely fantastic. While we did see earnings dip into the recession, the rebound has pushed convincingly past the 2007 peaks. However, shares have not caught up quite yet, leaving plenty of upside.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Small Cap Trader service
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