On Tuesday, RBC Capital Markets adjusted its outlook on Watches of Switzerland Group PLC (WOSG:LN), reducing the price target to GBP4.25 from GBP4.75, while maintaining an Outperform rating on the stock. The revision comes as the firm sets its expectations ahead of the company's fiscal year 2024 earnings report, which is scheduled to be released on May 16, 2024.
The analyst from RBC Capital expressed a belief that Watches of Switzerland is on track to meet its revised guidance for the fiscal year 2024. However, for fiscal year 2025, they anticipate the company will present a cautious revenue forecast with limited to no margin expansion. This outlook is influenced by challenging cyclical dynamics in the luxury watch sector, expected to persist into the first half of fiscal year 2025.
The report further notes that the growth from new store openings is likely to slow down due to fewer and later projects. This projection has led to a reduction in revenue by 9% and EBIT (earnings before interest and taxes) by 11% for fiscal year 2025. Despite the lower sentiment in the market towards Watches of Switzerland, RBC Capital values the company's supplier relationships more highly than the current market perception.
RBC Capital highlights that the current valuation of Watches of Switzerland at 7 times calendar year 2025 earnings per share (P/E) and 0.6 times enterprise value to sales (EV/sales) is seen as attractive. This valuation suggests a potential upside from the current market price, according to the analyst's assessment.
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