On Monday, UBS upgraded shares of EssilorLuxottica SA (EL:FP) (OTC: OTC:ESLOY), a leader in the optical industry, from Neutral to Buy. The firm set a new price target for the company's stock at EUR232.00, a significant increase from the previous target of EUR181.00. This upgrade comes despite the company's year-to-date performance, which has seen its shares rise by approximately 11%, outpacing the general uptrend in the Luxury and Sportswear sectors.
The optimism from UBS is based on several factors. Firstly, while the first half of the year is expected to show modest performance, with UBS estimates roughly 3% below consensus, the downside risk for the remainder of 2024 and the following two years is seen as limited. UBS projections place EssilorLuxottica's EBIT up to 2% ahead of consensus, distinguishing it from other luxury brands.
Additionally, UBS believes that the market has not fully recognized EssilorLuxottica's potential to accelerate its top-line growth to an estimated 6% between 2025 and 2028, compared to a consensus of around 5%. This expectation is rooted in the company's strategic initiatives and market positioning.
Another contributing factor to the positive outlook is the anticipated deceleration of wage growth in the EMEA region and the United States. UBS strategists suggest that slowing wage increases should alleviate margin pressures on EssilorLuxottica, which, as a highly vertically integrated company, faced a margin drag of around 175 basis points due to labor inflation in the first half of 2023.
Finally, the analyst notes EssilorLuxottica's defensive characteristics, which are deemed beneficial amid slowing growth in the broader luxury sector. Historically, such conditions have led to an expansion of the company's price-earnings (PE) premium relative to its sector during economic downturns, suggesting a resilience that could be appealing to investors.
In other recent news, EssilorLuxottica has been the subject of recent analysis by financial firms RBC Capital and Stifel. RBC Capital maintained its Sector Perform rating on the eyewear company, keeping a steady price target of €200.00. This decision was due to minor adjustments to financial estimates and effects of currency fluctuations, resulting in a slight 1% increase in projected EBIT for the company.
On the other hand, Stifel increased its price target for EssilorLuxottica from €203.00 to €207.00, following the company's first-quarter sales report for 2024 which revealed a 5.5% growth in sales. The firm maintained a Hold rating on the stock, reflecting the company's steady performance and effective pricing strategies.
InvestingPro Insights
Following the recent upgrade by UBS, EssilorLuxottica SA (OTC: ESLOY) continues to demonstrate a strong position within the optical industry. With a market capitalization of 100.32 billion USD and a trailing twelve-month P/E ratio of 38.88, EssilorLuxottica stands out as a prominent player in the Healthcare Equipment & Supplies industry. The company's commitment to shareholder returns is evident, with a dividend yield of 2.97% and a remarkable track record of maintaining dividend payments for 33 consecutive years.
InvestingPro Tips highlight that EssilorLuxottica is trading at a high earnings multiple, which aligns with UBS's view of its PE premium. Additionally, the company's stock generally trades with low price volatility, which could be a reassuring factor for investors looking for stability in uncertain economic times. For those seeking deeper analysis and more tips, InvestingPro offers a wealth of information, including the fact that there are 12 additional InvestingPro Tips available for EssilorLuxottica, which can be accessed with an exclusive 10% discount using the coupon code PRONEWS24 for a yearly or biyearly Pro and Pro+ subscription.
Investors considering EssilorLuxottica should note its solid financial performance with a gross profit margin of 62.35% over the last twelve months as of Q4 2023. Moreover, the company's cash flows have been robust enough to sufficiently cover interest payments, and it operates with a moderate level of debt. With analysts predicting profitability this year, and a strong return over the last five years, EssilorLuxottica's financial health appears sound.
EssilorLuxottica's strategic positioning and defensive characteristics, along with its financial metrics, make it a compelling consideration for investors looking to add a resilient luxury brand to their portfolio. Its performance and outlook, as reflected in the data and InvestingPro Tips, underscore the potential for continued success.
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