On Thursday, RBC Capital Markets adjusted its stance on Swatch Group AG (OTC:SWGAY) stock, a prominent player in the watchmaking industry. The firm downgraded Swatch’s stock rating from ’Sector Perform’ to ’Underperform’ and simultaneously reduced the price target from CHF150.00 to CHF140.00.
According to InvestingPro analysis, Swatch Group (SIX:UHR) appears undervalued at current levels, despite its stock declining nearly 30% over the past year. The company maintains impressive gross profit margins of 84.4% and has consistently paid dividends for 31 consecutive years.
The downgrade by RBC Capital Markets reflects concerns over the impact of smartwatch adoption on Swatch Group’s entry-level brands, which include Swatch, Tissot, and Certina. These brands are critical to the company’s volume, accounting for 80% of group volumes and 20% of group revenues.
InvestingPro data reveals that while the company faces challenges, it maintains a strong financial position with more cash than debt and a healthy current ratio of 8.19. Subscribers can access 8 additional exclusive ProTips about Swatch Group’s financial outlook.
The analyst pointed out that the market for smartwatches, which was valued at $44 billion in 2024, is expected to grow at a compound annual growth rate (CAGR) of 9% in penetration and 14% in market value. This growth trajectory poses a structural threat to Swatch’s entry-level brands due to overlapping price points with smartwatches.
Despite the challenges facing the lower-priced segments, RBC Capital Markets expressed a more optimistic view of Swatch’s high-end brands, including Breguet, Blancpain, and Omega, in the long term. However, in the near term, the firm noted that competitor brands with supply constraints are performing better due to their higher value retention.
Swatch’s Omega brand, in particular, is facing competition from the pre-owned market, with average price depreciation ranging between 30-37%, compared to Cartier at 20% and Rolex. This depreciation incentivizes consumers to opt for pre-owned watches, which affects new sales for Swatch.
The report also highlighted a positive development for Swatch brands on the resale platform Chrono24. Early signs in 2025 indicate a stabilizing supply of Swatch brand watches, with Omega being the second most listed brand on the platform, following Rolex.
Despite this encouraging sign, the overall outlook for Swatch’s entry-level brands remains cautious due to the growing dominance of smartwatches in the global market.
Financial metrics from InvestingPro show the company trading at a P/E ratio of 1.89, with analysts anticipating some pressure on sales in the current year but maintaining profitability expectations.
In other recent news, Swatch Group AG has been grappling with significant financial challenges. The company recently reported a 14.3% decline in net sales, which totaled 3.45 billion Swiss francs, falling short of the expected 3.75 billion franc consensus.
Additionally, Swatch’s operating profit dropped to 204 million francs, a decrease from 686 million francs in the previous year, and its net profit fell to 147 million francs from 498 million.
The firm Berenberg initiated a Sell rating on Swatch shares, citing concerns about the watchmaker’s financial performance due to industry challenges and operational decisions. Berenberg pointed out that various factors, including the tough economics of the watch industry, the sustained strength of the Swiss franc, and Swatch’s high inventory levels, are expected to continue pressuring the company’s earnings.
Several other financial firms have also downgraded Swatch Group’s stock. UBS shifted its rating from Neutral to Sell, reducing the price target to CHF127.00. Jefferies moved its rating from Hold to Underperform with a new price target of CHF120.00, and Exane BNP Paribas (OTC:BNPQY) shifted Swatch’s rating from Neutral to Underperform, reducing the price target to CHF150.00. These recent developments highlight the ongoing challenges faced by Swatch in the current market environment.
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