Investors looking ahead to 2024 should pick up shares of Hermes , Cartier owner Richemont and Hugo Boss in the luxury goods sector, according to UBS. The Swiss investment bank has a bullish call on those three stocks, though it struck a more cautious tone for the sector. After rising by 25% earlier this year, the S & P Global Luxury Index sold off by more than 12% over the past six months over fears of a recession. The index is accessible to investors through exchange-traded funds by Amundi and Roundhill. Analysts at the bank said their three picks had attractive valuations that would see minimal downside in a potential recession. “In a complex sector context we prefer the most defensive names, such as RMS (Buy), which we believe would see the lowest downside risk to estimates in a potential recession, thus supporting its premium valuation,” UBS analysts led by Zuzanna Pusz said in a note to clients on Nov. 21. “However, we also like value names such as CFR and BOSS (both Buy-rated), which, given the very low valuation and constantly evolving equity story, have a very low bar to deliver on.” RMS-FR CFR-CH,BOSS-DE YTD line UBS has a price target of 85 euros ($93) a share for Hugo Boss, which points to a 38% upside from the current share price. The bank has a price target of 113.75 Swiss francs ($129) for Richemont, which represents a 23% upside. The Swiss bank also raised its price target for Hermes to 2,216 euros, which is 12% above its current share price. The outlook for the three stocks contrasts with UBS’ view that slowing sales momentum and easing pricing power warrant caution on the luxury sector on the whole. The investment bank forecasts average industry growth will slow from 10% per annum since 2016 to just 6% next year, and are likely to become more dependent on Chinese consumers’ spending. UBS is also worried about further weakening of demand in the vital U.S. market on recession risks. It projected the sector’s average pricing gains will moderate from 6% annually from 2020 to 2023 to 3% in 2024 as inflation cools. As a result, analysts at the bank trimmed their 2024 earnings estimates across the sector by 5% on average. The investment bank is bearish on Burberry and Ferragamo , which it maintains a sell rating on. UBS has a neutral rating on some of the bigger names in the sector, such as LVMH , Kering , Zegna , EssilorLuxottica , Swatch and Tod’s .
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