UBS upgrades Zegna to Buy on stronger Western demand

Investing.com -- UBS upgraded Ermenegildo Zegna NV (NYSE: ZGN) to Buy, saying stronger demand from Western consumers and signs of stabilisation in China could lift sales growth and margins, while the stock trades below its historical valuation.

Shares has fallen about 10% this year. While UBS sees earnings per share growing at more than 20% a year over the medium term and set a $11.5 price target.

Zegna trades at a roughly 17% discount to the luxury sector. UBS said improving sales momentum and margin expansion could narrow that gap.

Zegna’s core brand, which accounts for about 60% of group sales, continues to see double-digit growth among Western customers, supported by targeted client outreach and product strategy aimed at affluent buyers.

UBS also pointed to a gradual improvement in Chinese demand, with a sequential pick-up in the fourth quarter, as a sign that pressure in that market may be easing.

After several years of rebalancing its geographic mix, UBS estimates the company ended 2025 with Americans making up about 31% of sales, overtaking Chinese customers at roughly 25%.

That marks a shift from 2021, when China accounted for nearly half of sales. UBS said the stronger presence in the U.S. creates a clearer path for revenue growth as the drag from China fades.

The bank expects group organic sales growth of about 5% in 2026, up from about 1% in 2025, helped by improving brand perception among both U.S. and Chinese consumers. It forecasts higher-quality growth driven by existing stores, with like-for-like sales expected to contribute most of the increase.

UBS expects that shift to support gradual margin expansion, forecasting EBIT margin to reach 9.5% in 2026 and 11.4% in 2027 as operating leverage improves and investment levels normalise.

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