On Thursday, Bernstein analysts adjusted their outlook on shares of Pernod Ricard (EPA:PERP) SA (RI:FP) (OTC: PDRDY), reducing the price target from €178.00 to €174.00 while maintaining an Outperform rating on the stock. The revision follows the anticipation of the company's first-half fiscal year 2025 performance, which is expected to be affected by market conditions in China.
Pernod Ricard's first-half results are projected to show some improvement over the first quarter, which saw a 6% decline. This is attributed to better trends in America and Europe, albeit with continued destocking. However, the weakness in the Chinese market is likely to impact the overall performance, casting doubt on the company's full-year guidance, which anticipates a return to growth.
Bernstein analysts express cautious optimism for a recovery in the second half of the fiscal year, but they also acknowledge the challenges in maintaining the current guidance due to limited visibility. The analysts suggest that Pernod Ricard might need to consider widening the guidance range to reflect the potential downside risk.
In comparison to Diageo (LON:DGE), a key competitor, Pernod Ricard is expected to underperform operationally in the short term. Nevertheless, Bernstein foresees a narrowing of the current 30% valuation gap between the two companies as Pernod Ricard's valuation converges with Diageo's.
The downward revision of the price target is also a result of updates to Bernstein's financial model for Pernod Ricard, which now includes adjustments for foreign exchange rates, reduced top-line assumptions, and trimmed margins due to the ongoing weakness in China. Consequently, the firm has reduced its earnings per share (EPS) estimates for Pernod Ricard by 2.2% for fiscal year 2025 and by 0.4% for fiscal year 2026.
In other recent news, Pernod Ricard, the French spirits group, has seen its stock rating change from "Sell" to "Hold" by Deutsche Bank (ETR:DBKGn). The financial institution also raised its price target for the company's stock to €104.00, a small increase from the previous €102.00. This adjustment in stance comes as the analyst acknowledges Pernod Ricard's appealing mix of product categories and geographical market presence.
However, there are concerns about the company's market performance in the United States, where it is thought to be losing market share due to less-than-ideal exposure to certain product categories. The report also underscored potential tariff risks affecting Pernod Ricard's operations in China and the US.
Despite these risks, the analyst suggests that the current valuation of Pernod Ricard's shares already partially accounts for these concerns. With the stock price now closely aligning with Deutsche Bank's revised target, the upgrade to a "Hold" rating reflects a neutral stance on the stock's current market position.
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