The luxury goods industry has endured a difficult few months, with sales of well-known brands such as LVMH and Burberry hit by a decline in high-end consumption. But one analyst is bullish on low-profile brands in segments adjacent to the luxury market. Jelena Sokolova, senior equity analyst at Morningstar, told CNBC Pro: “I like the luxury space, but over the long term I think there's also a lot of potential in the luxury space like high-end food and beverage companies and apparel companies.” She added: “Beverage companies are facing the same trends as luxury goods companies,” she said, naming Diageo as one to watch. The British multinational's portfolio includes brands such as Johnnie Walker, Guinness, Baileys and Hennessy. The spirits giant's shares are listed on the London Stock Exchange and trade in the United States as American Depositary Receipts (ADRs). Shares fell to their lowest in four years after the company reported full-year profit missed forecasts. Sokolova remains bullish on Diageo's long-term business: “It's a resilient business with high barriers to entry and very strong profitability.” Eight of the 24 analysts covering Diageo, according to Factset data Rate the stock a buy or overweight, 11 rate it a hold and 5 rate it a sell. Their average price target is £2,599.52 ($3,429.03), with potential upside of 2.7%. “First choice” Another company Sokolova is paying attention to is German online retailer Zalando. The analyst calls it a “top pick” in the apparel sector and likes that it is “the largest in the sector in terms of customer coverage and cash on the balance sheet.” “I've also seen the company invest while its competitors are laying off employees,” she added. Zalando recently reported second-quarter earnings before interest and taxes (EBIT) growing 6.5% to 171.6 million euros ($190.9 million). The retailer expects full-year EBIT to be between 380 and 450 million euros. Zalando's shares are listed on the Frankfurt Stock Exchange and traded in the United States as American Depositary Receipts (ADRs). Of the 25 analysts covering the stock, 18 have a buy or overweight rating, 6 have a hold rating and 1 has an underweight rating. FactSet data shows that the average price target for the stock is 33.43 euros, with upside potential of just over 34%. —CNBC’s Jenni Reid contributed to this report.
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