On Tuesday, Goldman Sachs (NYSE:GS) adjusted its stance on Kering (LON:0IIH) (EPA:PRTP) SA (KER:FP) (OTC: PPRUY), downgrading the stock from Neutral to Sell while maintaining a price target of EUR 235.00. The investment bank cited concerns over reduced earnings visibility relative to peers, as well as potential operational challenges for the luxury group's main brand, Gucci.
Gucci, which contributes 64% to Kering's EBIT for the fiscal year 2024 estimate, is currently undergoing a turnaround strategy. Goldman Sachs pointed out that the investments required for Gucci's growth revitalization, such as new content, customer acquisition, and engagement activities, may lead to increased risk of operational deleverage.
Despite Kering's shares underperforming compared to its peers, with a year-to-date decline of 28% versus the GSSBLUXG index, Goldman Sachs sees further risk to Kering's medium-term operating profitability. The bank's EBIT forecasts for fiscal years 2025 and 2026 are 11% and 10% below Visible Alpha consensus, respectively.
The report also highlighted that Kering's stock is trading at a premium, currently at 20 times the P/E ratio for the 2025 estimate, which is 18% higher than the 10-year average P/E ratio of 17 times, excluding the COVID period. This valuation suggests a cautious outlook on the stock, considering the broader luxury goods sector and market challenges.
In other recent news, Kering SA has been under scrutiny due to expected challenges in the luxury market. Jefferies has adjusted its price target for Kering SA, citing concerns about a weakening market in China and its impact on the luxury sector. The firm also reduced its earnings estimates for Kering, anticipating difficulties due to current market conditions.
Meanwhile, Barclays (LON:BARC), RBC Capital, and UBS have all downgraded Kering SA's stock. Barclays' downgrade was based on a steeper sales decline for Gucci in China compared to its competitors. RBC Capital's downgrade reflects concerns over a softening luxury goods market, particularly affecting Gucci, with their earnings per share estimates for Kering in fiscal year 2025 being 7% below the consensus.
Lastly, UBS downgraded Kering SA's stock, revising its earnings per share projections downward due to the time and costs associated with Gucci's new strategy implementation and the impact of a slowdown in sector trends on Kering's brands. These are recent developments, highlighting the challenges Kering faces in repositioning Gucci and its other brands.
InvestingPro Insights
Recent InvestingPro data provides additional context to Goldman Sachs' downgrade of Kering SA. The company's revenue growth has been negative, with a 10.25% decline in the last twelve months as of Q2 2024. This aligns with Goldman's concerns about Gucci's performance, as the brand is a significant contributor to Kering's earnings.
Despite these challenges, Kering maintains impressive gross profit margins of 75.37%, showcasing the company's ability to command premium pricing in the luxury market. This strength is reflected in an InvestingPro Tip highlighting the company's "impressive gross profit margins."
Investors should note that Kering pays a significant dividend, with a current yield of 5.66%. An InvestingPro Tip also points out that the company "has maintained dividend payments for 33 consecutive years," which may provide some comfort to shareholders during this period of uncertainty.
For those seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Kering SA, providing a deeper understanding of the company's financial health and market position.
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