Tiffany Is Now A Buy, According To Jefferies

• Tiffany & Co. TIF shares are down 33 percent year-to-date, and have been trading below the $80 mark so far in December.
• Jefferies’ Randal J. Konik upgraded the rating on the company from Hold to Buy, while raising the price target from $88 to $100.
• The pullback in shares offers a rare buying opportunity, and the company is poised to benefit in the near-term from topline & margin tailwinds, Konik stated.

Since Tiffany is a “powerful luxury brand,” there is a significant amount of predictability and stability in fundamentals, analyst Randal Konik said. He added that enhanced systems and supply chain capabilities, along with robust customer-facing strategies, should result in margin expansion and EPS growth in the years ahead.

“Our work around commodity input cost declines & product mix shifts shows that GM has potential to increase 100-400 bps over the next few years. Traction in more fashion-oriented jewelry is a further GM catalyst & we see oppty for leverage on marketing spend, rent & other fixed expenses,” Konik wrote.

The analyst expects Tiffany to achieve margin expansion in 2016 and 2071, and possibly beyond, due to lower commodity input costs.

Tiffany’s performance was hurt in 2015 by currency headwind that were beyond the company’s control. Next year, FX could result in a top-line hit in the mid-single digit percentage range. Konik added, however, that these currency headwinds should abate in 2017.

“Importantly, our correlation work shows a strong relationship between tourism & SSS, & suggests the worst is likely behind us on the slowdown in tourism, which started (& laps) during Holiday '15,” the Jefferies report stated.

Konik commented that the pullback in valuation below historical averages, as well as the topline and margin tailwinds, make Tiffany’s stock compelling.