Deutsche Bank Upgrades Luxottica (LUX) to Buy; Risks Increasingly Balanced

April 14, 2009 7:55 AM EDT

Deutsche Bank upgrades Luxottica (NYSE: LUX) to Buy. Price target E16.

Deutsche analyst says, "The recent market rally has not been selective, and Luxottica has underperformed our luxury universe by 8%. Reverting to higher selectivity, we upgrade Luxottica to Buy on strong fundamentals. While a top-down reading requires great confidence in a US recovery in 2H, a bottom-up approach underlines the company's strength and positioning and provides good arguments for its scarcity value and premium valuation. We believe the luxury world is reshaping, separating the winners from the losers, and we believe this is even more so in the eyewear segment...We believe 2009 will see a bottom for earnings, although we do not have visibility that earnings will bottom exactly at the level we predict. Both retail (especially sunglasses) and wholesale are still under pressure and could remain so for a few more quarters (we assume negative retail same store sales growth until 1H10 and deeply negative FX adjusted wholesale sales growth in 2009). We believe good buying opportunities could emerge, as we expect Q1 to be very bad, and Q2 could be very weak, too. However, after almost 18 months of earnings downgrades, with the company now boasting a more defensive business mix (50% of sales from prescriptions), help from Oakley, cost cutting (worth at least 8% of EBIT), and weak competition, we are prepared to look forward to 2010, for which we see earnings recovering by 25% yoy."

Luxottica Group S.p.A. is engaged in the design, manufacture and distribution of prescription frames and sunglasses in the mid-and premium-price categories.

Related Categories

Upgrades

Stocks Mentioned

Related Entities

• Deutsche Bank

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?