Could Ralph Lauren’s Stock Rise 50% Post Coronavirus?

by Trefis Team
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Based on a comparison of Ralph Lauren’s (NYSE: RL) stock trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 50% once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Ralph Lauren’s performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Ralph Lauren Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and April, 29th Ralph Lauren stock has lost nearly 34% of its value (vs. about 13% decline in the S&P 500). 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. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the S&P 500 price recover over recent weeks but our Apparel Stock Portfolio has remained suppressed.

Ralph Lauren’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

The decline in Ralph Lauren’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown is having on total consumption/consumer spending, and the global apparel industry. Notably, the company derives a bulk of its revenues from the US which has become the new epicenter of the outbreak- recording the largest numbers of COVID-19 cases across the globe. Additionally, Europe, which is the fastest-growing market for the company, has also been impacted a lot by the outbreak. Moreover, people are just not going to shop for luxury or even basic apparel products. Ralph Lauren has temporarily shuttered stores in North American and Europe which is further impacting the company’s performance. We believe Ralph Lauren’s Q4 2020 results will confirm this reality with a drop in revenues across segments. If signs of coronavirus containment aren’t clear by the Q4 earnings timeframe, it’s likely Ralph Lauren’s stock, along with the broader market, is going to see a continued drop when results confirm the palpable reality.

But Ralph Lauren Stock Witnessed Something Similar 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. This marked a steeper drop than the broader S&P, which fell by about 51%.
  • However, Ralph Lauren 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 has fallen by 34% this time around compared to the 56% decline during the 2008 recession, it could recover by almost 50% to levels of $119 once economic conditions begin to show signs of improving. This marks a full recovery to the $119 level Ralph Lauren stock was 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 GES to impact on competitor L Brands and Coronavirus on URBN stock. The complete set of coronavirus impact and timing analyses is available here.

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