On Monday, RBC Capital maintained its Outperform rating on Williams-Sonoma (NYSE:WSM) and significantly raised the stock price target to $261 from the previous $165. The adjustment follows the firm's analysis of the company's fourth-quarter performance and expectations for the year ahead.
Williams-Sonoma's fourth-quarter comparable sales estimate was increased by RBC Capital, despite a slight reduction in margin estimates. The updated comp sales forecast now stands at -5.6%, an improvement from the prior estimate of -7.1% and more optimistic than the consensus of -8.6%.
The revised earnings per share (EPS) estimate is set at $5.35, slightly down from the previous $5.58 but still approximately 4% above the consensus of $5.14.
Looking forward into 2024, RBC Capital anticipates Williams-Sonoma to project a stable demand, with a guidance for net revenue to be roughly flat. This contrasts with RBC's estimate of a 0.4% increase and the consensus forecast of a 1.4% decline.
The expectation of a consistent demand trend is believed to empower management to set an operating margin guidance around 15%, which is slightly lower than RBC's estimate of 15.4% and the consensus of around 16%.
For the fiscal year 2025, RBC Capital introduced its projections, predicting a net revenue growth of 3.3%, an operating margin of approximately 16.0%, and an EPS of $16.31. The new price target of $261 is based on roughly 16 times the firm's fiscal year 2025 EPS estimate.
In the same report, RBC Capital provided an analysis of potential risks and rewards for Williams-Sonoma's stock, estimating an upside potential of $296, which would be a 26% increase, and a downside risk of $185, marking a 21% decline. This risk-reward scenario was designed to offer a realistic view of the stock's prospects from the current standpoint.
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