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Investing.com -- Brunello Cucinelli has emerged as a distinct player in the luxury fashion industry, positioning itself at the ultra-premium end of the market with a strong focus on high-net-worth and ultra-high-net-worth individuals.
The brand’s ability to command pricing power and maintain resilience through economic cycles has made it a compelling investment case, as noted by Morgan Stanley (NYSE:MS) analysts, who have initiated coverage with an “overweight” rating and a price target of €130, in a note dated Wednesday.
Despite concerns over a potential slowdown in U.S. consumer spending, Brunello Cucinelli remains well-insulated due to its customer base, which skews toward older, wealthier individuals with significant accumulated savings.
The company has outlined a blueprint for sustained revenue growth, targeting a 10% compound annual growth rate, with revenue expected to reach approximately €2.3 billion by 2030.
Management has also signaled expectations of fair and sustainable profits, with potential for higher margins than current guidance suggests.
Morgan Stanley’s investment thesis is centered around several key factors. First, the brand’s projected €1.3 billion in sales for 2024 remains smaller than competitors like Loro Piana and Ermenegildo Zegna, signaling room for expansion.
Second, its high exposure to high-net-worth individuals provides a cushion against economic pressures that may impact more aspirational luxury brands.
Third, the U.S. market remains a stronghold, contributing 37% of sales, with particular appeal among older generations and technology executives.
Fourth, Brunello Cucinelli enjoys strong brand desirability, further enhanced by its unique business philosophy of ‘Humanistic Capitalism.’
Lastly, the company has lower exposure to the Chinese luxury market compared to peers, with Chinese nationals accounting for around 15% of sales versus an industry average of 30%.
From a valuation perspective, Brunello Cucinelli trades at 51 times its projected 2025 price-to-earnings ratio, a premium justified by its stable earnings trajectory and consistent demand.
Analysts expect the company to maintain strong pricing power while benefiting from continued expansion, with projected EBIT and topline growth of 13% annually from 2025 to 2028.
Morgan Stanley’s 2025 and 2026 EBIT estimates are already 2.5% and 4.5% above consensus, reinforcing the belief in further upside potential.
Risks to this outlook include key man risk, as founder Brunello Cucinelli remains a prominent figure in the company, albeit now in an executive chairman role.
Additionally, potential U.S. tariffs on European imports could pose a challenge, given the brand’s significant exposure to the American market.
However, its positioning within the ultra-premium segment suggests that customers would be more willing to absorb price increases compared to mass-market luxury consumers.