Goldman Sachs Bullish On Zegna's Growth Trajectory, Sees Brand Momentum And Loyal Customer Base As Drivers

Goldman Sachs analyst Louise Singlehurst upgraded Ermenegildo Zegna N.V. ZGN to Buy from Neutral, raising the price target to $18.70 from $17.

The analyst highlighted that the fundamental investment case for Zegna is positive, and given the recent underperformance, the analyst now sees valuation as more attractive.

Zegna's medium-term targets announced at its CMD (December 5) look for over a 10% sales CAGR over the medium term (using 2023 as a base) and 20% CAGR in adjusted EBIT. 

On a four-year view (2023-27E) the analyst now looks for a 10% sales CAGR and 17% in EBIT (was +8% and 16% respectively). 

The higher growth outlook is driven by new retail space, as well as higher store productivity across TFF (HSD) and Zegna Brand (10%), the analyst adds.

For the Zegna brand, the analyst remains upbeat on the opportunity given the standout product offerings, brand momentum, and customer loyalty to date supported by continued levels of investment (capex/brand).

Zegna recently disclosed spending by consumer cohorts, illustrating that its high-end customers (the cohort that spends €50k+ p.a.) grew 63% vs. 2022, vs. the lowest cohort being flat yoy, with the top 5% of customers representing 40% of sales, the analyst adds. 

Per Singlehurst, these characteristics show a greater skew towards the high-end customer, which has high loyalty and strong pricing power, and remaining resilient into FY24.

The analyst sees 20% FX growth in FY23 (was 19%) and +10% in FY24 (unchanged).

Price Action: ZGN shares are trading higher by 3.07% to $11.07 on the last check Thursday.

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