UBS Points to Two Top European Luxury Stocks Ahead of 2026 Upswing
Investing.com -- UBS issued contrasting ratings on two major European consumer goods companies on Wednesday, upgrading eyewear giant EssilorLuxottica to “buy” while downgrading Italian luxury group Prada to “neutral,” citing sharply different growth trajectories.
The Swiss bank raised EssilorLuxottica to “buy” from “neutral” with a €355 price target, representing 22% upside from the November 24 closing price of €303.70.
The upgrade centers on the company’s smartglasses business, which UBS projects could disrupt a €110 billion category by 2040.
UBS expects the Franco-Italian eyewear maker to achieve 10.1% organic sales growth in 2026, potentially making it "one of the fastest-growing names within our coverage as early as 2026."
For 2026, the brokerage forecasts revenues of €30.11 billion with an EBIT margin of 17.1%. The company’s shares trade on 38.1x 2026 P/E for sales and EPS CAGR of 9% and 16% respectively over 2025-2028.
A UBS Evidence Lab survey of over 1,000 US consumers showed nearly 80% of respondents plan to purchase smartglasses within 12 months, with "limited consumer awareness of the product’s functionality" cited as the main barrier.
Ray-Ban Meta achieved approximately 60% awareness among non-users, while no other brand surpassed 10%, according to survey results.
Current owners demonstrated willingness to pay 1.3 times more than average respondents, suggesting strong pricing power.
UBS estimates EssilorLuxottica could capture roughly 30% market share by 2040, corresponding to approximately €31 billion in revenues, though it assigns only 40% probability to this scenario given "the wide range of variables at this early stage."
In contrast, UBS downgraded Prada to “neutral” from “buy” rating with a HK$50 price target, a 32% reduction from the previous HK$74 target. The stock closed at HK$46 on November 25.
The Milan-based luxury house has demonstrated strong market share gains with 2019-2024 organic sales growth CAGR of 12% versus the sector’s 8%.
However, UBS expects "the combination of normalising LFL trends, increasing space contribution, and a step-up in investments to slow down the margin progression."
For 2026, UBS forecasts group organic sales growth of 7%, outperforming the luxury sector by just one percentage point versus eight percentage points in 2025.
The brokerage projects retail growth of 8%, with the Prada brand at 4% and Miu Miu moderating to 16% from 36% in 2025.
UBS identified several headwinds, including "early signs of maximalist fashion making a return" and intensifying competition from Dior and Chanel under new creative directors.
The brokerage expects an EBIT margin of 23.5% in 2026, up only 10 basis points year-over-year, as space expansion of 5% requires increased investment.
The pending Versace acquisition for $1.38 billion, expected to close before year-end, adds uncertainty with estimated high-single-digit percentage EPS dilution in 2025-2026.
UBS reduced earnings estimates by 1%, 3%, and 5% for 2025, 2026, and 2027 respectively, driven by trimmed organic sales growth of 180 basis points on average.