Market Overview

Canaccord Genuity Upgrades Tiffany to Buy; Is High-End Retail an Opportunity?


On Monday, Analysts at Canaccord Genuity upgraded shares of Tiffany (NYSE: TIF) from Hold to Buy with a $63.00 price target. TIF traded up about 0.32% near $53.00 following the upgrade.

Canaccord wrote, "Upgrading shares of TIF from Hold to Buy, as the stock's recent pullback has opened a window of opportunity into one of the best brands in luxury with significant global expansion opportunities." Canaccord added that it believes the stock is currently priced for a "worst-case scenario," as shares have fallen around 14% since the company lowered its full-year 2012 guidance on May 24. Year-to-date, TIF has lost nearly 20%.

Canaccord said that the stock is currently trading near its estimate of intrinsic value of $52.00. From current levels, it sees 20% upside in the stock.

Meanwhile, Wall Street seems to be divided on the investment outlook for high-end retail. For example, on Friday, JPMorgan upgraded shares of Saks (NYSE: SKS), while Citigroup cut its ratings on Nordstrom (NYSE: JWN), Macy's (NYSE: M) and Saks (NYSE: SKS) on Wednesday of last week. All three of the stocks were cut to Neutral.

The Citi analyst, Deborah Weinswig, said that high-end shoppers, who account for around 50% of spending in the U.S., are likely to be hurt by recent stock market volatility. “We are incrementally more concerned about the health of the consumer, given the softening U.S. economic outlook and declining consumer confidence,” she said. “We believe high-end spending is slowing, and we see the weakness in women's designer apparel as a more systemic issue that will likely weigh on (same-store sales) growth ahead.”

Others on the Street are taking the view that the recent pullback in the high-end space is an opportunity to buy quality names on sale. This is the reasoning that Canaccord is using to recommend Tiffany at current levels. The company is a preeminent global jewelry and luxury brand, but the stock remains stuck in a downtrend. Tiffany seems to make the most sense for long-term and value oriented investors willing to hold through more potential volatility. The stock's chart gives no indication that TIF is about to turnaround in the near-term, but valuation appears compelling and higher prices on a multi-year time-frame are very possible.

The stocks downgraded by Citi last week--Nordstrom, Macy's and Saks--are all off of their best levels of the year, but have been performing better than Tiffany. Another name that benefits from similar trends as these companies is Coach (NYSE: COH), which like Tiffany, also has an ugly near-term chart, but could be a value play at current levels. Year-to-date, COH is down around 4%, and remains in a downtrend, since hitting all-time highs in March.

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