KeyBanc Models A Sparkling 20% Upside In Tiffany & Co.

Tiffany & Co. TIF reported fiscal third quarter results Wednesday that exceeded estimates, underlined by the jewelry maker's first positive American comp in years. 

The stock retreated 1.6 percent in reaction to the results.

The Analysts

KeyBanc Capital Markets analyst Edward Yruma upgraded his rating on the shares of Tiffany from Sector Weight to Overweight with a $115 price target. The price target suggests roughly 20 percent upside from current levels.

The Thesis

The first positive comps in the Americas since the third quarter of 2014 point to the early stages of a more broad-based sales recovery, prompting the upgrade, Yruma said in a Thursday note. (See Yruma's track record here.) 

A recent strength in silver jewelry is being augmented by early signs of improvement in higher-end jewelry, Yruma said. 

The analyst said he expects stronger comps and modest margin growth to drive mid-to-high single-digit earnings growth. Strength in high, fine and solitaire and fashion — 53 percent of Tiffany's revenue in 2016 — are likely to be key comp drivers for 2018, the analyst said.

Earnings, which have largely been stable, should begin to grow as comps accelerate, according to KeyBanc. The firm also said new management in place at Tiffany brings a sense of urgency to the business. 

"A highly involved board as well as new CEO Alessandro Bogliolo and CFO Mark Erceg (joined October 2016) can be the catalyst for faster progress."

The Price Action

Notwithstanding investor caution on the industry, Tiffany shares are up over 22 percent year-to-date.

After pulling back Wednesday following the results, the stock rebounded by 2.13 percent Thursday before ending at $94.50.

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