On Tuesday, Citi initiated coverage on Puig Brands SA (PUIG:SM) stock, a prominent player in the premium fragrance market, with a Buy rating and a price target set at EUR23.00.
The firm's analysis suggests that Puig is well-positioned to capitalize on the ongoing surge in the fragrance category, which is expected to persist for at least the next two years.
This period is seen as an opportunity for the company to broaden its distribution network and enhance its presence in the make-up and skin care markets.
Puig, known for owning successful brands such as Rabanne and Carolina Herrera, is anticipated to experience approximately 9% organic sales growth (OSG) between 2025 and 2026. This growth projection is attributed to a 6% increase in the fragrance category and a 3% boost from brand outperformance and expansion efforts.
These factors are projected to contribute to an approximate 11% compound annual growth rate (CAGR) in earnings before interest and taxes (EBIT), which in turn is expected to drive a similar 11% growth in earnings per share (EPS) over the coming three years.
Citi's valuation approach, which takes into account the unique aspects of each segment within Puig's portfolio, underpins the EUR23.00 price target. This target implies a roughly 20% expected total return (ETR), indicating a positive outlook for the company's stock performance.
The assessment by Citi reflects confidence in Puig's ability to offer value accretion, particularly as the Chinese market recovers and ahead of the next beauty cycle.
The analysis by Citi also acknowledges the relatively small but successful make-up segment of Puig, highlighted by the Charlotte Tilbury brand. Despite this segment's current scale, there is potential for significant growth as the company continues to strengthen its position in the beauty space.
In summary, Citi's outlook for Puig Brands SA is optimistic, with expectations of sustained growth and market outperformance. The firm's recommendation suggests that Puig represents an attractive investment opportunity in the beauty industry at present.
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