On Wednesday, Citi updated its outlook on Pandora (OTC:PANDY) A/S (PNDORA:DC) (OTC: PANDY), slightly increasing the price target to DKK1,331 from DKK1,330, while maintaining a Buy rating on the stock. The firm's analyst highlighted the insights gained from the first day of Pandora's field trip, which showcased the company's efficient crafting and supply operations in Thailand.
Pandora operates two production facilities in Bangkok's Gemopolis and one in Lamphun, which provide the company with vertical integration, scale, and skilled labor at a competitive cost. This operational strategy has enabled Pandora to maintain a high gross margin, which consistently exceeds 80%, despite potential foreign exchange and commodity price challenges.
The company has set a target for cumulative EBIT margin expansion of 100-200 basis points between 2023 and 2026, aiming to reach 26-27%. The gross margin is expected to contribute approximately 50 basis points to this expansion, according to Citi's estimates. This is in line with Pandora's own guidance, which anticipates an increase of 100 basis points from network expansion and an additional 0-100 basis points from operating leverage.
Although the year-to-date increase of 20% in silver prices to around $30 per ounce could potentially reduce the FY25E gross margin by 260 basis points to about 77%, the management of Pandora believes that the impact will likely be neutralized through various measures. These include strategies to drive top-line growth, reduce the cost of goods sold (COGS) by using less silver, and possibly controlling operating expenses (opex).
In other recent news, Pandora A/S has been the subject of an updated stock target by Jefferies, which has increased the target from DKK950.00 to DKK1,150.00, while maintaining a Hold rating on the stock. This adjustment is in anticipation of Pandora's first-quarter results, expected to be announced soon, with the company predicted to continue showing strong sales growth and improved gross margins. However, these gains may be slightly offset by increased operational expenses and interest costs, potentially resulting in earnings per share falling slightly below consensus estimates.
In the latter half of the year, Pandora faces the challenge of managing more difficult comparative figures, with the company's strategy to navigate these tougher comparisons being closely watched. The firm's upcoming launch of the new Essence range in the second quarter is another significant development, with its potential impact on Pandora's financial performance being closely monitored.
InvestingPro Insights
Pandora A/S (OTC: PANDY) demonstrates robust financial health and market performance, as evidenced by the latest data from InvestingPro. The company boasts a strong gross profit margin of 79.03% for the last twelve months as of Q1 2024, reinforcing Citi's analysis of Pandora's high margin capabilities. This impressive margin performance is a testament to the company's efficient operations and strategic pricing.
InvestingPro Tips highlight that Pandora has been a prominent player in the Textiles, Apparel & Luxury Goods industry, with management aggressively buying back shares and maintaining dividend payments for 14 consecutive years. These actions reflect the company's commitment to shareholder value and its confidence in long-term financial stability. Moreover, analysts predict that Pandora will be profitable this year, which aligns with the strong returns it has delivered over the last year, with a price total return of 97.29%.
Pandora's market capitalization stands at $12.73 billion, and while it trades at a high P/E ratio of 20.46, the adjusted P/E ratio for the last twelve months as of Q1 2024 is slightly lower at 18.35. Investors may also note that the company operates with a moderate level of debt and has managed to achieve a high return on assets of 21.16% during the same period.
For readers interested in a deeper dive into Pandora's financial metrics and strategic positioning, InvestingPro offers additional insights. There are more InvestingPro Tips available, which can be accessed by visiting https://www.investing.com/pro/PANDY. To gain full access to these insights, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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