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RBC COOLS ON LUXURY: 'REVENUE GROWTH IS VANITY'
Luxury stocks may have rallied over the past six months, but RBC reckons this sector has entered a phase in which revenue beats - like Richemont's CFR.S stronger-than-expected sales last week - are no longer enough to sustain the momentum.
The Canadian bank says the recent rally has been driven by a valuation re-rating. That means the next leg higher will need EPS upgrades, something that looks increasingly scarce.
"What is required are earnings upgrades.. and they appear to be in short supply, despite fairly meaningful negative revisions in 2025," write analyst Piral Dadhania and his RBC colleagues.
They say the selloff in Richemont shares following revenue beats across the board is illustrative of this shift, and also reflects "crowded positioning and elevated expectations".
In detail, RBC anticipates positive EPS revisions over the next 6 to 12 months for only two of the stocks under coverage - Burberry BRBY.L and Nike NKE.N - helped by cost cuts.
Adidas ADSGn.DE, Kering PRTP.PA, Richemont, Swatch UHR.S and Pandora PNDORA.CO face downgrades, while neutral trends are in store for LVMH LVMH.PA, Hermes HRMS.PA, Cucinelli BCU.MI, Moncler MONC.MI DrMartens DOCS.L, WOSG WOSG.L and EssilorLuxottica ESLX.PA.
To sum it up, they say: "Revenue growth is vanity; earnings upgrades are sanity".
(Danilo Masoni)
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EARLIER ON LIVE MARKETS:
COULD EUROPE RUN OUT OF GAS? CLICK HERE
STOXX DIPS BUT SELLOFF SLOWS, EYES TURN TO TRUMP IN DAVOS CLICK HERE
EUROPE BEFORE THE BELL: FUTURES STEADY, SELLOFF SET TO EASE CLICK HERE
MARKETS CLING TO HOPES OF A DAVOS DE-ESCALATION CLICK HERE