TD Cowen has adjusted its outlook on Kering (EPA:PRTP) SA (KER: FP) (OTC: PPRUY), reducing the price target to €230 from €260 while maintaining a Hold rating on the stock.
The firm's analysis indicated concern over the speed and difficulty of Gucci's recovery efforts, which have been further challenged by a widespread economic slowdown in Asia.
Additionally, the firm suggested that the luxury brand's revised earnings before interest and taxes (EBIT) forecast, which is 12% below market expectations, could face more risk if the new product launches do not resonate with consumers.
The analyst from TD Cowen expressed belief in the strategic decisions taken by Kering, such as product elevation and the appointment of De Sarno. Despite these positive steps, the analyst warned that the company might have to endure further challenges before witnessing improvement.
Kering's Gucci brand, a key driver of the company's performance, has been undergoing a transformation aimed at revitalizing its product offerings and brand image. The analyst's comments reflect a cautious stance on the speed of this turnaround, citing specific concerns about the impact of the economic environment in Asia on the luxury sector.
The lowered EBIT guidance from Kering has added to the cautious tone set by TD Cowen, pointing to the possibility of further adjustments if the company's strategic initiatives do not perform as expected. The mention of potential deeper cuts suggests that the firm is closely monitoring Kering's financial health and the success of its new product lines.
Kering SA, which is listed on the Euronext Paris stock exchange, is a multinational corporation specializing in luxury goods. Its brands include Gucci, Saint Laurent, Bottega Veneta, and others, making its performance a significant indicator of the luxury market's overall health.
In other recent news, Kering SA has seen a series of downgrades and revised earnings projections from multiple analyst firms. Citi downgraded Kering's stock from Buy to Neutral, citing increasing challenges in executing brand turnarounds.
The firm also revised Kering's financial forecasts, reducing sales estimates by 4% for FY24E and by 8% for FY25E. Similarly, Goldman Sachs downgraded Kering's stock from Neutral to Sell due to concerns over reduced earnings visibility and potential operational challenges for Gucci, Kering's main brand.
Jefferies, Barclays, RBC Capital, and UBS have also downgraded Kering SA's stock, each citing different reasons tied to market conditions, brand performance, and future earnings estimates. Jefferies revised its price target for Kering, predicting difficulties due to a weakening market in China.
Barclays' downgrade was influenced by a steeper sales decline for Gucci in China compared to competitors, while RBC Capital's downgrade reflects concerns over a softening luxury goods market, with their earnings per share estimates for Kering in fiscal year 2025 being 7% below the consensus.
UBS revised its earnings per share projections downward due to the time and costs associated with Gucci's new strategy implementation and the impact of a slowdown in sector trends on Kering's brands.
InvestingPro Insights
Recent data from InvestingPro provides additional context to TD Cowen's analysis of Kering SA. The company's market capitalization stands at $31.16 billion, reflecting its significant position in the luxury goods sector. Despite the challenges highlighted in the article, Kering maintains impressive gross profit margins of 75.37% for the last twelve months as of Q2 2024, underscoring the company's ability to command premium pricing for its luxury products.
InvestingPro Tips reveal that Kering pays a significant dividend to shareholders, with a current dividend yield of 6.59%. This could be an attractive feature for investors seeking income in the luxury goods sector. However, aligning with TD Cowen's cautious outlook, InvestingPro data shows that Kering's stock price has fallen significantly over the last three months, with a total return of -20.82%, and even more dramatically over the past six months at -27.98%.
These insights complement the article's discussion on Gucci's recovery challenges and the potential impact on Kering's financial performance. Investors considering Kering may find value in exploring the additional 9 tips available on InvestingPro to gain a more comprehensive understanding of the company's financial health and market position.
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