On Friday, Swatch Group AG (SIX:UHR:SW) (OTC: SWGAY (OTC:SWGAY)) stock faced a downgrade from "Hold" to "Underperform" by Jefferies, with its price target also reduced to CHF120.00 from the previous CHF170.00. The downgrade reflects the analyst's concerns over the company's significant exposure to underperforming markets and product categories, particularly in China and the United States.
Swatch Group's stock performance has been noted to decline by 12% since July 1, contrasting with a sector average drop of 18%. This decline occurred despite the company's considerable sales presence in China, which accounts for 33% of its total sales, surpassing the industry average of about 24%.
Additionally, Swatch's focus on lower and mid-priced watch categories, which make up roughly 70% of its sales, is much higher than that of its closest competitor, Compagnie Financière Richemont (LON:0QMU) SA (CFR).
The analyst's outlook for Swatch Group is cautious, anticipating group sales to fall 2% below consensus, with organic growth projected at -9.7%, which is more pessimistic than the recent consensus estimate of -7.8%. This forecast is driven primarily by the Chinese market, where no recovery is expected in the second half of the year following a 30% downturn in the first half.
This stance is reinforced by limited signs of a Chinese market recovery in the latter part of the year, leading to a wary perspective for 2025 as well, with group organic sales growth estimated at 4.0%, below the consensus of 4.8%.
The analyst's comments highlight the vulnerability of Swatch Group due to its reliance on the Chinese and aspirational US consumer markets, which continue to face pressures. The company's performance is closely tied to these markets, making it susceptible to broader economic trends and consumer spending habits in these regions.
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