On Tuesday, UBS adjusted its stance on Moncler SpA (BIT:MONC:IM) (OTC: MONRY) stock, downgrading the luxury fashion company's stock from Buy to Neutral. The firm also revised its price target downwards to EUR 53.00 from the previous EUR 63.00.
The reassessment by the analyst at UBS is based on a number of factors that signal potential risks in the upcoming third and especially fourth quarter, which is a critical period for Moncler, accounting for over 40% of its sales.
The analyst noted Moncler's brand remains robust as evidenced by double-digit increases in Google (NASDAQ:GOOGL) search interest compared to 2019. However, there are concerns about the sector's overall downward trend, particularly in the Chinese market, which has been a significant contributor to Moncler's growth.
The expectation is that consumer demand in China will continue to decelerate, leading to a potential downward revision of retail forecasts for the Moncler brand in the second half of the year.
Additionally, UBS anticipates that Moncler's management will maintain its focus on long-term growth investments, which may result in short-term earnings before interest and taxes (EBIT) margin pressure.
This is expected due to planned marketing activities in the second half, including the Genius launch in October. The forecasted representative EBIT margin for the second half of the year is 35.0%, with a full-year estimate of 29.4%.
The UBS analysis also suggests that there could be less potential for re-rating of Moncler's stock. This is attributed to the belief that consumer interest may shift back to the brand's core categories, such as outerwear, in the current economic climate, which could limit the impact of the 2025 Spring/Summer collections.
In conclusion, while UBS continues to recognize Moncler's long-term growth prospects, the downgrade to Neutral is a strategic move to navigate through short-term uncertainties.
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