EssilorLuxottica downgraded at UBS on valuation, near-term risks

Investing.com -- UBS downgraded EssilorLuxottica SA (EPA:ESLX ) shares to Neutral from Buy on Tuesday, citing near-term risks despite a positive outlook for the company, including potential US tariffs and shifts in consumer spending patterns, as well as the stock’s valuation.

EssilorLuxottica's shares have staged a stellar performance in 2024, rising by 27% year-to-date and outperforming the MSCI Europe (Textile Apparel and Luxury) index by 37%. This surge has brought the stock's price-to-earnings ratio to approximately 29 times the forecasted FY25 earnings.

Among the positives, UBS highlighted the expected acceleration in top-line growth from the fourth quarter of 2024, driven by innovation and mergers and acquisitions (M&A). The bank also noted EssilorLuxottica's defensive profile and the benefit of a strengthening USD, with the US accounting for around 43% of sales.

The revised estimates from UBS suggest a 6.3% growth in 2025, aligned with the consensus, and include a 2 percentage point contribution from M&A. The forecast anticipates regional growth with North America at 5.2%, EMEA at 6.2%, APAC at 10.0%, and LatAm at 8.3%.

Moreover, UBS expects a 110 basis point expansion in EBIT margin, adjusted for foreign exchange impacts, to reach 17.9%.

Looking ahead to 2025, UBS believes investors’ focus will likely be on several key areas, including the recovery of the US sun market, the balance between price-mix and volume growth, progress on new products like hearing aid devices and Ray-Ban Meta (NASDAQ:META ) smartglasses, and potential FDA approval for Stellest in the US.

The risks identified include the “impact of US tariffs on goods imported from China and Mexico, delay in FDA approval for Stellest in the US, slower than expected margin expansion, and any sharp depreciation in FX in one of its key emerging markets,” analysts pointed out.

UBS has set a price target for EssilorLuxottica at €248, which represents a 9% potential upside from the current levels.

Source: Investing.com