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On Tuesday, Barclays (LON:BARC) analyst Laurence Whyatt upgraded shares of Pernod Ricard (EPA:PERP) SA (RI:FP) (OTC: PDRDY), shifting the rating from Underweight to Equalweight and increasing the price target to €97.00, up from the previous €94.00. The adjustment followed Pernod Ricard’s third-quarter earnings, which fell short of analyst predictions despite a robust performance in the United States.
Whyatt noted that while the U.S. results were better than anticipated, there are concerns about the sustained strength of Pernod Ricard’s U.S. business. This apprehension is partly due to price cuts implemented to boost volume, which, according to Nielsen data, has led to mid-single-digit value declines. Additionally, there are uncertainties about the company’s capacity to pass on any tariffs to consumers, especially in the context of a weakening U.S. spirits market.
Despite these concerns, the analyst acknowledged that Pernod Ricard’s current share price appears to have factored in these risks. Furthermore, the company’s own guidance, as of the first half of the fiscal year results, does not anticipate a return to growth in the following year. However, Whyatt pointed out that the situation in China seems to be improving, with ongoing negotiations between China and the European Union potentially easing trade tensions.
The analyst highlighted that Chinese tariffs on cognac are significantly higher than U.S. tariffs on European Union products. These tariffs have been affecting sales, particularly in the travel retail sector in China. If these tariffs were to be lifted, Barclays expects a considerable positive impact on Pernod Ricard’s share price. This potential for improvement has led to the revised Equalweight rating and a new price target of €97.00.
In other recent news, Pernod Ricard has seen adjustments in its financial outlook from major analyst firms. Deutsche Bank (ETR:DBKGn) revised its price target for Pernod Ricard, lowering it from EUR103.00 to EUR97.00 while maintaining a Hold rating. This adjustment reflects a more cautious view on the company’s performance, particularly in the Asian and European markets, with a predicted decline in organic revenue growth for the third quarter of fiscal year 2025. The full fiscal year 2025 is expected to see a -3.2% shrink in organic revenue, with earnings per share estimates also reduced due to foreign exchange impacts.
RBC Capital Markets also adjusted its price target for Pernod Ricard, reducing it from EUR140.00 to EUR120.00, while maintaining a Sector Perform rating. This change follows a reassessment of the company’s financial guidance amid broader industry challenges and uncertainties, including potential international trade disputes and the company’s high debt levels. RBC Capital forecasts that Pernod Ricard’s net debt to EBITDA ratio will reach 3.5 times by June 2025, which may limit financial flexibility. Despite these concerns, RBC noted that the shares have underperformed compared to peers, influencing their decision to maintain the current rating. These recent developments provide investors with updated benchmarks to assess Pernod Ricard’s financial trajectory.
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