Barclays initiates coverage: underweight on De’Longhi, equal weight on TechnoGym

Investing.com -- Analysts at Barclays (LON:BARC) have initiated coverage on two Italian small and mid-cap consumer companies, assigning an "underweight" rating to De’Longhi and an "equal weight" rating to TechnoGym. 

The move comes amid concerns over the impact of recently imposed U.S. tariffs and broader macroeconomic uncertainties.

De’Longhi, a well-known brand in the coffee machine market, is expected to struggle with the 20% tariffs imposed on European imports by the U.S. government. 

According to Barclays analysts, the company’s limited pricing power means it will not be able to fully offset the increased costs. 

A similar tariff situation in 2019 led to a roughly 300 basis point decline in De’Longhi’s EBIT margins, and the current scenario appears even more challenging. 

Analysts predict De’Longhi’s 2025 earnings per share will fall below €2, underperforming the consensus forecast of €2.26.

Further concerns stem from De’Longhi’s €600 million cash reserves, which analysts fear may be spent on acquisitions at valuations higher than its own trading multiple.

The recent purchase of La Marzocco at approximately 15 times trailing EV/EBITDA raises concerns that further acquisitions at similarly high valuations could erode shareholder value. 

Additionally, the coffee machine market remains highly competitive, with strong rivals such as Breville, Phillips, Siemens (ETR:SIEGn), SEB, and Bosch (NSE:BOSH). 

Combined with exposure to discretionary consumer spending, De’Longhi faces multiple headwinds, leading Barclays to initiate coverage with an "underweight" rating and a price target of €23 per share.

TechnoGym, meanwhile, is expected to face limited direct impact from U.S. tariffs, as only 10% of its sales come from the U.S. Unlike De’Longhi, TechnoGym has demonstrated pricing power, historically maintaining margins without resorting to aggressive discounting. During the 2019 tariff hikes on China, TechnoGym’s EBIT margin decline was limited to 40 basis points, compared to the steeper drop seen at De’Longhi.

TechnoGym also benefits from long-term growth trends in health and wellness, with analysts expecting the company to grow revenues at a 10% compound annual growth rate. 

While its profit margins remain below pre-pandemic levels, Barclays sees room for improvement, particularly as recent hiring efforts give the company cost flexibility. 

However, with the stock trading at 23 times forward P/E and 12 times EV/EBITDA for 2025, its valuation leaves little room for upside. 

Despite strong sales growth in recent quarters, Barclays expects growth to decelerate, making it difficult to justify an upgrade. 

As a result, analysts initiate coverage with an "equal weight" rating and a price target of €13 per share.

Barclays analysts also highlight broader uncertainty surrounding U.S. tariff policy. While there is speculation that the tariffs imposed on April 2, may be rolled back, there is also the risk that they could be reimposed in the future, adding an element of unpredictability for investors. 

Given these concerns, analysts argue that investors should demand a high margin of safety when evaluating companies exposed to tariff risks.

Barclays cites Ferrari (BIT:RACE) as an example of a company with "true pricing power," having recently announced a 10% price increase in the U.S. to fully offset tariffs without altering earnings guidance.

However, most companies lack this level of pricing flexibility. Many will only aim to maintain dollar EBIT rather than growing earnings in line with consensus estimates, which could leave investors unimpressed even if reported results appear stable.

According to Barclays’ estimates, a 20% tariff could drive U.S. EBIT into negative territory for companies with low-teens EBIT margins, such as De’Longhi and TechnoGym.

In an already uncertain macroeconomic environment, declining earnings estimates could keep investors on the sidelines until macro risks subside or earnings expectations improve.