After two sessions of decline in a row, EssilorLuxottica (+2.34% to 205.70 euros) rebounded, posting one of the strongest increases in the CAC 40, supported by a note from UBS. The broker changed its recommendation on the Franco-Italian eyewear manufacturer from Neutral to Buy, while increasing its price target from 181 to 232 euros. “EssilorLuxottica’s size and execution capabilities enable it to successfully launch new products. As a result, its revenue growth is expected to accelerate to around 6% versus consensus of around +5% “, explains UBS.
“Initially, we assume an increase in marketing spend above 7% of sales, but with signs of easing pressures from wage growth in Europe and North America, margin expansion is expected resume in 2025-2026,” adds UBS.
EssilorLuxottica shares are up nearly 11% since the start of the year (compared to a 7% rise for the luxury and sportswear sector). “With its relative valuation at the high end of its range, investors may rightly ask why now?” UBS offers four main reasons for this question.
Firstly, if the first half of the year is expected to be weak, the risks of disappointments for the rest of 2024 and 2025-2026 are limited unlike other names in the luxury sector.
Second, the market does not fully appreciate the prospect of revenue growth accelerating to around 6% in 2025-2028.
Third reason given: signs of deceleration in wage growth in the EMEA region and the United States. The broker recalls the strong vertical integration of the company: wage inflation had a negative impact of around 175 basis points on margins in the first half of 2023.
For the analyst, the fourth reason is the defensive nature of EssilorLuxottica. The slowdown in growth of the luxury sector should encourage an increase in its premium relative to the sector, as was the case during previous slowdowns.
