RH Profits With Travel Spending Shifted to High-End Home Decor

(Bloomberg) -- What's bad for cruise lines and beach-house rentals appears to be good for home furnishings company RH.

The retailer known for its Cloud sectionals and design services said Monday that it sees a “clear path” to 20% operating margin over the next few years, sending shares up and prompting a pair of analysts to double their price targets on the stock.

“Money saved in experiences is being spent on improving the home,” wrote JPMorgan analyst Tami Zakaria as she boosted her price target to a Street-high $270 from $135.

RH shares soared as much as 15% Tuesday to touch the highest intraday in more than three months, and the stock is up about 200% from a March low. On Thursday, the company will post first-quarter earnings after the closing bell.

Gordon Haskett reversed an April downgrade and included a mini-mea culpa. “We under-estimated the strength of the high-end consumer, which has been very resilient (thus far),” analyst Chuck Grom said.

More well-heeled consumers are showing stronger spending, especially when it comes to spending on the home, he said. Grom noted that the investment-in-the-home theme has similarly benefited peers like Wayfair Inc. and Williams-Sonoma Inc.

“Our survey work has pointed to the curtailment of a number of more discretionary expenditures, including travel and vacations, which based on today's backdrop could continue for the foreseeable future,” said Grom, who more than doubled his price target to $220 from $104. The stock sailed past Grom's revised price target Tuesday, climbing as high as $244.37.

A third analyst also lifted his price target. Stifel's John Baugh now has a target of $265, from $150 earlier. “We are raising our estimates believing RH survived the pandemic better than we had expected,” he wrote.