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RAPAPORT... Sterne Agee analyst Ike Boruchow upgraded shares in Tiffany & Co. to ''Buy'' from ''Neutral'' with a target price of $86, citing a highly visible margin recapture opportunity in the upcoming 18 to 24 months, a rapidly growing international platform, which now accounts for about half the retailer's sales, and a U.S. business segment that has made a number of key executive hires and implemented new product initiatives. Tiffany & Co.'s shares (TIF) closed more than 1 percent lower in yesterday's trading at $73.91.
In a note to clients this morning, Boruchow described ''impressive hires'' Anthony Ledru, head of the North American retail business, and Francesca Amfitheatrof, design director, as strong enough additions to the team that Tiffany & Co. can expect to revive its lagging U.S. business.
The analyst wrote that Tiffany & Co.'s margins carry the potential for up to a 400-basis-point improvement within 24 months due to lower raw materials costs, in-store price increases, recovery in the silver business and improved sales trends. ''We note that the Street is only projecting 70 basis points of gross margin improvement from 2012 to 2014, despite gross margin being up 120 basis points in the second quarter and increasing tailwinds ahead, so we believe there could be material upside to the Street's 2014 earnings-per-share estimate, should our thesis play out,'' Boruchow wrote.
Tiffany & Co.'s international markets remain very strong with comparable sales up 13 percent in Asia, 8 percent in Japan and 7 percent in Europe during the second quarter, so the focus has to be on driving better performance in the U.S., given flat growth in the past six quarters. Sterne Agee believed that recent hires will provide new higher-fashion merchandise, such as Ziegfeld and Atlas collections, and beat an easy comparable-store figure from Christmas 2012, down 2 percent, though the government shutdown remains a concern if it continues.
''We believe Tiffany's relationship and ongoing arbitration with Swatch Group has kept potential suitors at bay the past few years. Once that overhang is cleared, potentially by year end, investors may once again view TIF as being 'in play,' limiting downside in the stock, in our view,'' he noted.
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