On Tuesday, BofA Securities analyst Andrea Pistacchi revised the price target for Pernod Ricard (EPA:PERP) SA (RI:FP) (OTC: PDRDY) to €126.00 from the previous €148.00. Despite the reduction, the firm continues to recommend a Buy rating for the stock.
Pistacchi noted that Pernod Ricard's primary markets, the US and China, are currently facing challenges. These difficulties may hinder the company's ability to achieve its fiscal year 2025 guidance, which anticipates a return to slight organic sales growth.
The analyst pointed out that the market has already accounted for the anticipated sales contraction, with consensus forecasts predicting a 0.8% decline. Pernod Ricard is expected to focus on cost savings and reduced advertising and promotional spending to alleviate the impact of the softer top-line performance on its margins. BofA Securities estimates a marginal margin compression of 10 basis points.
Pistacchi highlighted that Pernod Ricard's valuation is at a 13-year low, trading at less than 14 times its 12-month forward price-to-earnings ratio, representing approximately a 14% discount compared to European staples. The analyst believes that this valuation reflects the tough short-term market conditions.
The report concludes with an expectation of an uptick in sales momentum during the second half of the year, which could lead to a partial re-rating and potential outperformance of Pernod Ricard shares in the market.
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