Exane downgrades RH to Underperform on growing liquidity concerns

Exane BNP Paribas downgraded RH (RH) to Underperform from Neutral with a price target of $253, down from $274. The company’s leverage and liquidity shorten the timeframe for it to deliver results, the analyst tells investors in a research note. The firm says RH exited Q2 with a seven-times leverage ratio, making liquidity a “growing concern.” Limited free cash flow, declining return on invested capital and increased capital intensity shorten the timeframe for RH to deliver, contends Exane. The firm believes its concerns on capital structure and RH’s limited cash flow could curtail gallery openings. Trading a “relative high multiple,” the stock’s risk/reward skews negative with significant downside to consensus estimates, says the analyst.