On Monday, RBC Capital adjusted its stance on Kering (EPA:PRTP) SA (KER:FP) (OTC: PPRUY), downgrading the stock from Outperform to Sector Perform and lowering the price target to €290 from €310. The downgrade reflects concerns over a softening luxury goods market, which is expected to particularly affect Kering's brand Gucci.
The firm cited Gucci's ongoing transition to a new design aesthetic as a potential challenge, suggesting that the brand's mix of old and new products could hinder its performance. According to RBC Capital, this shift may delay the anticipated turnaround for Gucci, with positive revenue growth not expected until the second half of 2025.
RBC Capital's earnings per share (EPS) estimates for Kering in fiscal year 2025 are 7% below the consensus, indicating a more cautious outlook than that of other market observers. The analysis pointed to a strong link between earnings revisions for fiscal year 2025 and the company's share price performance.
Despite Kering's year-to-date share price decline of 36%, the firm's assessment suggests that investors should be mindful of the correlation between earnings projections and stock movement. The report highlights the importance of earnings expectations in the evaluation of Kering's future share price.
In other recent news, UBS has downgraded Kering SA's stock from Buy to Neutral, also reducing its price target from €410.00 to €300.00. This change follows UBS's reassessment of the time and costs associated with implementing Gucci's new strategy, which makes up approximately 70% of Kering's EBIT, and the effect of a slowdown in sector trends on Kering's brands.
The firm noted that Kering's efforts to revitalize its brands have resulted in reduced clarity regarding when positive outcomes will begin to emerge. UBS's reassessment was also influenced by first-half results, leading to a significant reduction in earnings per share (EPS) forecasts for Kering. The firm has revised its EPS projections downward by 17% for FY24 and by 26% for both FY25 and FY26.
The downgrade reflects the challenges Kering faces in repositioning Gucci and its other brands amidst a broader deceleration in the luxury sector. The new price target of €300.00 takes into account the revised earnings expectations and the anticipated time it may take for Kering's strategies to materialize into financial success.
InvestingPro Insights
As investors digest RBC Capital's revised outlook on Kering SA, real-time data from InvestingPro provides additional context to the company's financial health and market performance. Kering's market capitalization stands at $32.09 billion, with a Price to Earnings (P/E) ratio of 16.78, which adjusts to a slightly more favorable 13.46 when looking at the last twelve months as of Q2 2024. Despite a challenging period, Kering's gross profit margins remain impressive at 75.37%, showcasing the company's ability to maintain profitability in its operations.
InvestingPro Tips highlight that Kering's stock is currently in oversold territory according to the Relative Strength Index (RSI), and despite taking significant hits over the past week, month, and three to six months, the company has maintained dividend payments for 33 consecutive years—a testament to its financial resilience. Furthermore, analysts predict profitability for the year, which aligns with the company's track record of being profitable over the last twelve months.
For investors looking for deeper insights, there are additional InvestingPro Tips available, which could provide further guidance on Kering's financial outlook and stock performance. These tips can be accessed through the dedicated InvestingPro platform.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.