On Tuesday, BofA Securities issued a downgrade for Remy Cointreau (EPA:RCOP) SA (RCO:FP) (OTC: REMYY) shares, adjusting the stock rating from Neutral to Underperform. Additionally, the firm reduced the price target to €50.00 from the previous €63.00. The revision comes amid expectations of a challenging fiscal year 2025/26, with BofA estimating a modest increase in EBIT of 1%, contrasting with the consensus forecast of a 7% rise.
The downgrade reflects concerns over the impact of tariffs in China on Remy Cointreau's business, with the potential for new tariffs in the United States not being factored into forecasts. BofA Securities highlighted the uncertainty surrounding the long-term performance of the company, particularly in comparison to its peers in the spirits sector.
The less favorable outlook for cognac sales post-pandemic, a key revenue driver for Remy Cointreau, was cited as a significant factor behind the revised expectations.
Cognac sales, which are projected to account for approximately 65% of Remy Cointreau's sales in fiscal year 2025, are under scrutiny. Since the release of the company's first-half results in November, Remy Cointreau's stock has experienced a re-rating relative to staples, reaching a premium of over 40%. BofA Securities analysts argue that this premium is not warranted, given the current and anticipated market conditions.
The BofA Securities analysis draws on a report from September 24, which offered a detailed examination of the cognac market and its prospects. The report, titled "We still believe in Spirits," provided insights into the challenges and opportunities within the broader spirits industry, with a focus on cognac's position in the US and China markets.
Investors are now faced with a revised perspective on Remy Cointreau's stock, as BofA Securities' assessment suggests a cautious approach to the company's growth prospects amid a complex and evolving global trade environment.
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