(BFM Bourse) – The Swiss bank has purchased the specialist in corrective lenses, appreciating its clever mix of accelerated growth and defensive qualities.
Seventh largest market capitalization in the CAC 40, Essilorluxottica should probably be the next stock on the Paris stock market to cross 100 billion euros on the stock market. The optical and corrective lens group is currently worth around 94.5 billion euros.
Not necessarily the most followed company in the CAC 40, EssilorLuxottica has however been in good shape since January. The stock has gained 13.77% since the start of the year, outperforming a stable CAC 40 as well as the three luxury groups LVMH, Hermès, Kering, to which Essilorluxottica is sometimes compared on the stock market.
Despite this remarkable performance, UBS believes that there is still potential for the stock. The Swiss bank raised its opinion on the purchase value this Monday, against “neutral” previously, while increasing its price target to 232 euros against 181 euros previously. At Friday’s close, this target gives the stock a potential of 15%.
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Growth destined to accelerate
This change in advice allowed Essilorluxottica shares to gain 2.2% at the start of the afternoon on the Paris Stock Exchange, the second largest increase in the CAC 40.
UBS puts forward several points to justify its more positive opinion on the value. First of all, and unlike luxury groups, UBS considers that the risks for the company’s second half are low.
“Expectations for the second half of the year are much lower than for other names in the luxury sector (…) and, in our view, the room for negative surprises is limited for the remainder of 2024,” explains the establishment.
“The signs of recovery in store traffic in the United States towards the end of the second quarter (according to UBS Evidence Lab), the benefit of price increases and a relatively easy basis of comparisons make us believe that the risk/reward couple is now more positive,” she adds.
That’s obviously not all. UBS believes that the market does not fully appreciate the potential for improvement in Essilorluxottica’s growth, which the Swiss bank estimates at 6% per year over 2025-2028 (compared to 5% for the consensus).
Play defensive qualities
“Essilorluxottica’s size and execution capabilities allow it to successfully launch new products and disrupt categories,” says UBS, citing in particular the “Stellest” range of lenses, which helps slow the progression of myopia. infantile. This product has met with success in China which the company intends to replicate in the United States.
The bank also notes that wage tensions in Europe and North America are easing, which should allow the company to increase its operating margin again in 2025 and 2026. The establishment considers that the group will manage to reach the bottom of its margin target range in 2026, i.e. 19% (while there were doubts about achieving this objective).
Last point put forward: the defensive virtues of the Franco-Italian enterprise. “The defensive nature of the company, in a context of slowing growth in the luxury sectors, should favor the widening of its valuation premium (in terms of expected earnings multiples, editor’s note) compared to the sector, as has been been the case during previous slowdowns”, underlines UBS.
Essilorluxottica’s ability to innovate is one of the group’s strengths which lead certain design offices to adopt a positive opinion on the value. In addition to the Stellest range, Bank of America appreciated, in March, the Nuance Audio range of hearing solutions, which will be launched in the second half of 2024 in the United States, and which “will open the door to an important, new and yet adjacent market, in the field of hearing aids, thanks to a unique product”.
Julien Marion – ©2024 BFM Bourse
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