For a while, Oppenheimer has maintained a favorable longer term stance toward Tiffany & Co. (NYSE:TIF) and its shares. The firm’s nearer term outlook for TIF has proven more mixed, owing to a challenging backdrop and ongoing acute internal missteps. The narrative for TIF shares might now be shifting meaningfully. A well-regarded activist investor recently assumed a stake in TIF and seemingly influenced a significant management and board repositioning at the chain. Headwinds persist for TIF. That said, as the firm looks toward later 2017 and beyond, it is increasingly optimistic that fresh eyes within the TIF senior ranks might bring an improved executional acumen and operating disciplines to the chain. The firm’s new price target of $105 (up from $87) implies upside of over 15% from current levels.
Oppenheimer is lowering its FY17 (Jan. 2018) EPS estimate to $3.55 from $3.95 previously, and is well below a current Street forecast for earnings of $3.87. Its FY18 (Jan. 2019) EPS estimate goes to $3.80 from $4.35 and compares to a consensus estimate of $4.26. The firm is introducing a FY19 (Jan. 2020) EPS forecast of $4.20.
TIF is set to introduce FY17 guidance when the chain reports Q4 results on Mar. 17th. The combination of ongoing macro and sector headwinds, and a management team in flux, implies to us that TIF could prove extra conservative in its initial outlook.
On Feb. 21st, JANA Partners, together with Francesco Trapani, disclosed a 5.1% combined stake in TIF shares and influenced the appointment of three new board members. The firm believes the addition of an activist investor with board representation should prove instrumental in helping TIF find a new CEO and improving operational efficiencies.
Oppenheimer’s now lower FY17 EPS forecast assumes an operating margin of just 18.0% in FY17, 300 bps shy of a peak 21.0% achieved in FY14 (Jan. 2015). An analysis of other luxury brands suggests to the firm that there could be significant gross margin upside at Tiffany, helping drive longer term operating margins in excess of prior peaks.
The firm’s new TIF price target of $105 (up from $87) is predicated upon about 25x its newly established FY19 (Jan. 2020) EPS estimate of $4.20, a level that implies a P/E multiple relative to that of the S&P 500 of about 1.4x, consistent with recent peaks for TIF shares.
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