Resilient growth and a potential M&A target
Tiffany Co. (TIF), which is held by Joel Greenblatt and Daniel Loeb, is my top pick among US luxury companies given its status as a leading global jewelry brand. The company should be able to growth its top line at a high single digit rate while also growing year-over-year earnings at rates close to 10%. This growth should mainly come from the Asia-Pacific and European regions (where the company is growing year-over-year same-store-sales by 13% and 7%, respectively). I would also expect the company to expand margins thanks to improving raw material prices and a mix shift towards higher-margin regions of the world.
Tiffany, which trades at 21 times earnings and 11 times EBITDA, has a market capitalization of $9.8 billion. The company is also a compelling M&A target given its low debt (0.6 times 2013 EBITDA) and the resilience of its revenue stream.
A re-born brand
I love the way the Burberry (BURBY) brand has been gaining global momentum. The company's strength in the Chinese market and in the UK (40% of Burberry's European business) have been key for the group's remarkable organic sales growth (which should be as high as 8% year-over-year for the second quarter). Besides, the company's leading digital media efforts and improving retail execution (with retail and wholesale margin expansion) make a long case even easier to make. Burberry's retail same-store-sales (maybe the most relevant figure in the business) are also remarkably strong. Analysts expect the company's same-store-sales to grow by as much as 18% year-over-year in the second quarter.
Burberry, which is largely held by Cornerstone Capital Management, trades at 2014 20.5 times earnings, 10.8 times EBITDA and has no debt. With its market capitalization at just above $11 billion, the company could also be a M&A target for bigger luxury groups such as LVMH Moet Hennessy Louis Vuitton (LVMUY).
With global wealth still in its growth phase, great luxury goods companies still have up-side potential. Not only because they are bound to experiment top-line growth but also because the whole industry is still consolidating itself and the premiums paid are always large. A good example of this has been the recent sale of Loro Piana to LVMH. The French luxury conglomerate paid $2.6 billion for 80% of the Italian cashmere maker, valuing the company at 17 times EBITDA. Even when I like both Tiffany and Burberry, my favorite play among luxury goods companies is Tiffany. Customers are loyal to their jewelers and, hence,
According to Credit Suisse, global wealth grew by 5% year-over-year, compared with a global decline of 5% in the prior year. Besides, according to the same research report, the US saw the biggest improvement, with wealth up by 13% thanks to the recovery in property prices and the on-going rally in equity markets. Moreover, the bank expects wealth to increase by 7% per year until 2018. With this in mind, here I want to take a look at my two top luxury equity ideas.