Low Expectations May Offer Tiffany A Chance To Shine

CLSA sees multiple factors helping Tiffany & Co. TIF to gain in the upcoming period though they wouldn't be as glittering as the firm would have liked it to be. However, low expectations from the specialty retailer would make the stock to shine following a year and half of struggle with sales drop and tourist headwinds.

Analysts Rick Patel and Cait Howard initiated Tiffany with an Outperform rating and $80 price target.

One of the key factors that the brokerage expects is China as a growth driver in the immediate and long term. CLSA expects the specialty retailer to build its store base to 70 locations and that they could offer an incremental EPS addition of $0.95. The firm sees the region offering enough opportunities for future growth.

The second factor is the drop in input costs, which has the potential to expand gross margin until the year 2017. The lead analyst point out that the company was able to expand its margin for nearly two years despite sales drop. The company has the potential to gain from a mix perspective in the holiday season if it succeeds in higher pricing for new silver/gold initiatives.

Referring to product innovation, the brokerage said, "During the holidays, we expect an increase in silver jewelry SKUs (below US$500), combined with social-media marketing, will help it lure more millennial customers. Outperformance in this highly profitable category would further support GM expansion."

CLSA expects Tiffany to continue to boost its dividend with the help of FCF and expects share repurchase to add 1–2 percent to EPS growth.

The stock traded at $72.49, gaining $1.28, or 1.80 percent.