Citi Says Unclear When Tiffany's Business Will Rebound, Downgrades To Neutral

Citi’s Paul Lejuez downgraded the rating on Tiffany & Co. TIF from Buy to Neutral, while lowering the price target from $86 to $78.

Disappointing Holiday Sales

Lejuez mentioned that the stock has appreciated 20 percent from its recent lows, and is currently trading at a higher level than before the company reported disappointing holiday sales on January 19.

Tiffany reported holiday comps of -5 percent, below the estimate of flat comps. Comps decelerated sequentially despite “more newness and marketing around gift giving items under $500 and less of a tourism impact,” Lejuez elaborated.

Related Link: Vetr Crowd Downgrades Tiffany & Co., Sees No Upside

Trends Unlikely To Change

The analyst does not believe near-term trends would improve, while expecting the guidance to be back-half weighted when the company reports its 4Q results on March 18. This would make the risk/reward on the stock less favorable in the near term.

“We believe statement jewelry sales slowed over Holiday, which could be a pressure point in F16 as well. And without meaningful sales growth, SG&A deleverage is likely to more than offset GM improvement,” the analyst said.

“Perhaps a change in strategy is needed, which could take some time and money to execute,” the analyst stated, while adding that “Tiffany is a strong global brand with an opportunity to grow sales long term, and a FCF yield of 6 percent provides some downside support.”

The FY16 and FY17 EPS estimates have been lowered from $3.95 to $3.76 and from $4.33 to $4.00, respectively.