A Resugence In Luxury Drives Goldman To Upgrade Tiffany

The luxury goods business is enjoying an upswing, and that could be very good news for Tiffany & Co. TIF. Goldman Sachs analyst Lindsay Mann has upgraded Tiffany from Neutral to Buy and believes the company could be one of the major beneficiaries from an uptick in luxury spending.

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“TIF offers unique exposure to a resurgence in luxury, driven by improved international tourist spending and a firming high-end U.S. consumer,” Mann explained.

She also predicts Tiffany management can give the company’s cash flow a shot in the arm by tweaking the company’s operations. According to Mann, lower diamond costs and better inventory management should provide support for Tiffany’s margins. Any increases in company cash flow could be put to use via stock buybacks.

Related Link: Tiffany's Reaches Highest Level Since August 2015

Tiffany and its luxury peers such as Burberry and Louis Vuitton have already been benefiting from the rising net worth of wealthy U.S. spenders and an increase in travel spending as well. Burberry recently noted an uptick in Chinese tourist spending and strength in tourist spending in the U.K. Louis Vuitton reported strong performance in the Macau, China, market and “good growth” in France as well.

By improving management of working capital to reduce inventory days, increasing commitments to shareholder capital returns and enhancing brand performance, Mann believes Tiffany management could make a major positive impact.

Mann suggests ramping the quality and quantity of faster-turn product offerings and reducing the amount of non-sellable inventory as two ideas to boost cash flow.

Tiffany is off to a strong start in 2017, up 18.9 percent year-to-date. _________ Image Credit: Walters Art Museum [Public domain, CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons