Ralph Lauren Stock Could Gain 75% Post Covid-19

Based on a comparison of Ralph Lauren’s stock (NYSE: RL) trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 75%, to reach almost $122 once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Ralph Lauren’s stock performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, ‘Ralph Lauren Stock 44% Below February High (Down 40% YTD), Has 75% Upside’

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Ralph Lauren stock lost 45% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 7% over recent weeks (vs. about 56% gain in the S&P 500) to its current level around $70. Despite a partial recovery, the stock is still down 40% since the beginning of the year.

The Movements In Ralph Lauren’s Stock Were Triggered By Several Underlying Factors

The decline in Ralph Lauren’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown are having on consumer spending and on the global apparel industry in particular. The company’s first-quarter was adversely impacted due to the outbreak of coronavirus, which forced people to stay indoors, resulting in a steep decline in the demand for the company’s products. Moreover, dwindling consumer demand reduced discretionary spending, and stay-at-home orders resulting in stores remaining closed continue to impact the company’s performance in Q1 2021 (ending June), resulting in the company’s revenues plunging by 65% y-o-y to $487 million. However, we expect the company’s business to improve over the coming months as demand for luxury products rebounds and mall traffic returns to normal, which should provide a boost to the company’s stock price.

But How Does The Movement This Time Around Compare With The Trend During The 2008 Downturn?

• We see Ralph Lauren stock declined from levels of around $66 in October 2007 (the pre-crisis peak) to levels of around $29 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 56% from its approximate pre-crisis peak -higher than the broader S&P, which fell by about 51%.
• However, Ralph Lauren stock recovered strongly post the 2008 crisis to about $69 in early 2010 – rising by 136% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period

Will Ralph Lauren’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Ralph Lauren stock fell 45% from the market peak on February 19 to the low on March 23 compared to the 56% decline during the 2008 recession, we believe it can potentially recover by 77% to levels of $122 once economic conditions begin to show signs of improvement. This marks a full recovery to the $122-level the stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Ralph Lauren’s multinational peers – from Coronavirus and Skechers to impact on competitor Wolverine and Coronavirus on Gap stock. The complete set of coronavirus impact and timing analyses is available here.

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