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On Wednesday, TD Cowen's analysis led to an increase in the price target for Kering (EPA:PRTP) SA (KER:FP) (OTC: PPRUY), boosting it to €260 from the previous €222, while the Hold rating on the stock was sustained. The adjustment reflects a new valuation based on 20 times the firm's revised forward-year earnings per share (EPS) estimates for the fiscal year 2026. According to InvestingPro analysis, the stock appears undervalued at current levels, with impressive gross profit margins of 75.4% and a P/E ratio of 14.6x.
Kering, the parent company of the luxury brand Gucci, is undergoing strategic changes as it accelerates product launches and restructures its distribution network. This includes the closure of directly owned stores and a reduction in wholesale exposure. Gucci, which contributes nearly 70% of Kering's earnings before interest and taxes (EBIT), is in a period of transition that has prompted investor caution. InvestingPro subscribers can access detailed financial health scores and additional insights, with over 30 premium tips available for Kering. This is due to uncertainties surrounding the brand's recovery in sales as it closes stores, integrates a new CEO who took the helm on January 1, 2025, and introduces a higher proportion of new products into its lineup.
The analyst noted that while Gucci is expected to introduce up to 50% new products in the first half of 2025, compared to about 30% historically, it is still uncertain whether these new offerings will resonate with consumers and lead to increased store productivity. The brand is believed to be entering a new phase that emphasizes timeless appeal over the previous strategy of premiumization, which may have distanced its core customers.
Despite easier comparisons in the fiscal year 2025, TD Cowen has moderated its EPS estimate for Kering to €11.19 from the initial €12.00, remaining below the consensus of €11.99 due to reservations about the sales recovery at Gucci. The firm's projections include a 2.5% decline in Gucci's sales for the next year, incorporating a conservative outlook for the first half's performance amidst the introduction of new products and market volatility, particularly in China.
The success of Gucci's three new handbag lines—Emblem, B bag, and Blondie—is being closely watched as an indicator of the brand's ability to adapt and appeal to its customer base in this new chapter. Recent data from InvestingPro shows the company has maintained dividend payments for 34 consecutive years, demonstrating long-term financial stability despite current challenges. The stock has shown positive momentum with a 13.5% return over the past week, though analysts anticipate some near-term pressure on sales.
In other recent news, Kering SA has been the subject of significant attention from several analyst firms. TD Cowen maintained a Hold rating on Kering's shares, reducing its price target due to concerns about the speed and difficulty of Gucci's recovery efforts. The firm also noted the potential risk of Kering's revised earnings before interest and taxes (EBIT) forecast, which is 12% below market expectations, if new product launches do not resonate with consumers.
Similarly, Berenberg initiated coverage with a Hold rating, citing the importance of Gucci's turnaround for Kering's overall narrative. The firm acknowledged Kering's compelling valuation but advised waiting for the end of the earnings per share (EPS) downgrade cycle before considering a more positive rating.
Various other firms have also expressed cautious outlooks. Goldman Sachs, Citi, and UBS downgraded Kering's stock, citing concerns over reduced earnings visibility, challenges in executing brand turnarounds, and the impact of a slowdown in sector trends on Kering's brands. Barclays (LON:BARC) and RBC Capital also downgraded Kering's stock, with the former citing a steeper sales decline for Gucci in China compared to its competitors, and the latter pointing to a softening luxury goods market.
In light of these developments, investors may want to keep a close eye on Kering's strategic decisions, particularly regarding its flagship brand, Gucci, and its performance in the Asian market.
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