Morgan Stanley initiated coverage of Reformation Inc. on Tuesday with an Equalweight rating and a $16 price target, citing the apparel retailer's eCommerce-led business model and strong gross profit margins while acknowledging near-term growth challenges.
The bank’s initiation follows a week in which Reformation’s shares fell 9.5% to close at $14.48 on Aug. 21, near the 52-week low of $14.29. The stock was priced at $15 per share in its October 2023 initial public offering, and shares have since traded below that level.
Morgan Stanley highlighted Reformation’s premium positioning, data-driven supply chain, and consistent revenue performance as competitive strengths that support mid-teens percentage medium-term growth and mid-high-teens EBITDA margins. However, the firm noted that these advantages do not eliminate category risks such as fashion trends, brand relevance, and competitive pressures.
Analysts also pointed to near-term headwinds, including recent volatility in top-line growth, tougher year-over-year comparisons, limited direct-to-consumer disclosure, and a short public company history. They added that investors are likely to focus on near-term revenue execution as the primary driver of multiple expansion.
Reformation reported approximately $500 million in revenue while maintaining profitability, with gross profit margins of 62%. Morgan Stanley’s $16 target implies a modest premium to the current share price, reflecting cautious optimism amid the broader market volatility.
The initiation comes as other firms also begin coverage. Baird initiated with an Outperform rating and a $19 price target, while RBC Capital assigned an Outperform rating with an $18 target and estimated adjusted EBITDA of $110 million for the coming period.
