Burberry shares rise as RBC upgrades stock, citing acquisition potential

Investing.com -- Shares of Burberry (LON:BRBY ) saw a rise on Wednesday following an upgrade by RBC Capital Markets to an "outperform" rating from a "sector perform” rating, accompanied by a price target increase to GBp 900 from GBp 650. 

This change reflects RBC's optimistic view of Burberry's potential as an acquisition target, particularly by Moncler, along with a strategic pivot under CEO Joshua Schulman towards a more focused product lineup, especially in outerwear. 

Analysts at RBC pointed out that despite recent gains, Burberry's valuation remains low, offering substantial upside potential if a buyout occurs.

RBC analysts noted that Burberry’s previous attempts to expand into leather goods had met with mixed responses, contrasting with its traditionally strong outerwear segment. 

Under Schulman’s leadership, Burberry appears to be realigning with its heritage strengths. RBC’s view is that this focused strategy not only enhances Burberry’s brand authenticity but could also make the company an appealing target for Moncler, which dominates the outerwear market. 

RBC analysts believe that Moncler or similar companies may see this alignment as an opportunity for growth, as Burberry’s current market value is less than half of its peak valuation in FY23, potentially allowing for a favorable acquisition price.

The forthcoming interim results, scheduled for November 14, are anticipated to reveal more of Schulman’s strategic insights. RBC has set expectations for moderate adjustments, with a strong emphasis on repositioning rather than immediate financial recovery, projecting a second-quarter retail revenue of £405 million. 

RBC’s price target is grounded in a DCF model that indicates substantial room for valuation improvement if Burberry achieves the forecasted growth trajectory. 

With the possibility of an acquisition and a steady focus on core products, RBC’s "outperform" rating aligns with a speculative yet positive outlook for Burberry's shares going forward.

Source: Investing.com