Despite a waning housing market, at least in terms of the inventory of homes available, analysts remain bullish on a steady demand for suburban homes, and what that could mean for companies on the fringe of the home industry.
“Overall, given the ongoing housing strength combined with a longer furniture purchase cycle, we anticipate demand can remain elevated for at least the remainder of 2021. Further, we anticipate suburban sprawl will continue over the longer-term which bodes well for RH as 80% of revenue mix is in the suburbs (12% second homes, 8% urban) and management pointed to 2X square footage increase when shoppers move out of cities into the suburbs, suggesting an opportunity to significantly increase sales.”
The market seems to be sharing a similar sentiment about RH, which has seen shares skyrocket over 631% since its pandemic lows last March, including a 19% jump to close out the week last week after reporting fourth-quarter earnings and revenue that beat expectations.
While so many other home retailers like Wayfair (W) have also thrived during COVID-19 as consumers shifted their spending to things around the house, investors worry that as vaccines continue to roll out and restaurants reopen along with other forms of entertainment, that spending will taper off. But Wedbush analysts Seth Basham, doesn’t see this happening for RH:
“We view the company’s guidance as conservative given the housing market dynamics where larger and luxury homes are the hottest part of the market and drive the highest furniture spending levels, as well as RH’s plans to start advertising again in 2H21 and launch RH Contemporary (which will include one of the largest new line offerings to-date for the company) in 2H21.”
Since its fourth-quarter earnings, RH has seen price targets rise across the board, with Cowen upping its prices from $570 to $600; JPMorgan, from $570 to $610; Wells Fargo, from $525 to $575; and Wedbush, from $520 to $550.