EssilorLuxottica downgraded at UBS on valuation, near-term risks

    investing.com 03/12/2024 - 14:42 PM

    UBS Downgrades EssilorLuxottica

    Investing.com — On Tuesday, UBS downgraded EssilorLuxottica SA (EPA:ESLX) shares from Buy to Neutral, citing near-term risks despite a positive outlook influenced by potential US tariffs and changing consumer habits, alongside the stock’s valuation.

    Strong Performance in 2024

    EssilorLuxottica’s shares have increased by 27% year-to-date, outperforming the MSCI Europe (Textile Apparel and Luxury) index by 37%. Currently, the stock’s price-to-earnings ratio stands at approximately 29 times the forecasted FY25 earnings.

    Growth Expectations

    UBS noted prospective acceleration in top-line growth from Q4 2024, propelled by innovation and mergers and acquisitions (M&A). Positive factors include EssilorLuxottica’s defensive positioning and the strengthening USD, with approximately 43% of sales derived from the US.

    Revised estimates predict a 6.3% growth in 2025, including a 2 percentage point boost from M&A. Projected regional growth rates are North America at 5.2%, EMEA at 6.2%, APAC at 10.0%, and LatAm at 8.3%.

    Additionally, UBS anticipates a 110 basis point improvement in EBIT margin due to foreign exchange effects, bringing it to 17.9%.

    Future Considerations

    For 2025, UBS highlights key focus areas including:
    – Recovery of the US sun market
    – Balance between price-mix and volume growth
    – Advancements in new products like hearing aids and Ray-Ban Meta smartglasses
    – Potential FDA approval for Stellest in the US

    Identified Risks

    Analysts pointed out risks such as:
    – Impact of US tariffs on imports from China and Mexico
    – Delays in FDA approval for Stellest
    – Slower margin expansion than expected
    – Significant currency depreciation in key emerging markets

    Price Target
    UBS has set a price target for EssilorLuxottica at €248, indicating a 9% potential upside from current levels.




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