BofA Merrill Lynch downgrades Burberry, says re-rating unjustified
Bank of America Merrill Lynch downgraded its stance on luxury fashion brand Burberry to 'underperform' from 'neutral' on Wednesday as it cut earnings per share estimates across the luxury sector.
The bank reduced its 2019-21 EPS assumptions by 3% on average in a move it said was driven entirely by the mid-cap turnaround brands, where it expects ongoing margin pressure.
Merrill, which maintained its 1,800p price target on Burberry and noted 8% downside potential, said: "Burberry has re-rated 4x price-to-earnings points in 2019, which we see as unjustified given limited visibility over timing and trajectory of potential brand turnaround."
BofA ML said recent macro data from China has driven a re-rating in the sector, but fundamental data points more relevant to sector earnings have normalised.
"Asia was soft across the board in February, due to the shift in Chinese New Year, however it will likely improve in March. European and US data continues to soften; while not as important for sentiment, these markets will likely drive ongoing normalisation in sector revenue growth."
In the same note on luxury goods, Merrill reiterated its 'buy' ratings on LVMH and Moncler and its 'underperform' on Richemont.
At 1550 BST, Burberry shares were down 2.2% at 1,931p.