Why Ralph Lauren Corp Is Ready to Rebound

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Ralph Lauren Corp gained 1.5% in early Wednesday trading after Wells Fargo upgraded the designer apparel company from market perform to outperform.

So what: Along with the upgrade, analyst Evren Kopelman raised his valuation range to $186-$197 (from $166-$171), representing as much as 23% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's weakness in recent months, Kopelman thinks that several of Ralph Lauren's growth initiatives are starting to take hold.

Now what: According to Wells, Ralph Lauren's risk/reward trade-off is pretty attractive at this point. "EPS revisions could turn positive on sales momentum as we believe investment spending-related margin pressure for FY2015 is already well laid out by RL and is mostly in consensus estimates and the stock," Kopelman said. "We also see a potential acceleration in share buybacks." Given Ralph Lauren's not-so-cheapish P/E of 20 and exposure to still-sluggish consumer spending, however, I'd wait for a much wider margin of safety before jumping in. 

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The article Why Ralph Lauren Corp Is Ready to Rebound originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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