Lovisa shares soar on Macquarie upgrade
Make us a preferred source
Make us a preferred source on Google
The news: Jewellery retailer Lovisa was one of the sharemarket's best performers in morning trading after Macquarie analysts upgraded their rating on the stock from 'neutral' to 'outperform'.
The numbers: Macquarie analysts raised their price target around 25% from $26.90 to $33.70. Shares were up 4.2% to $31.82 by 11:30am AEST, having tumbled earlier this week on news of CEO Victor Herrero's departure.
The analysts also upgraded their earnings per share estimates by 2% in FY24, 2% in FY25 and 6% in FY26, driven by improving EBIT margins due to lower long-term incentive (LTI) payments for incoming CEO John Cheston compared to his predecessor.
They noted that Herrero has earned $51.1 million in LTI performance payments, with estimated payments of around $59 million by the end of FY24.
With no incentives to be paid in FY25, and significant reductions expected from FY26 to FY28, Macquarie's forecasts imply an EBIT margin improvement of around 470 basis points (bps) between FY24 and FY28, with approximately 200bps resulting from employee costs.
The context: The analysts said they upgraded their rating on the stock based on continued strength in store rollout and revenue growth. They also noted that they did not expect the change of CEO to impact Lovisa's ability to rollout stores, and forecast similar store rollout momentum until FY28.
Macquarie analysts said they saw "significant upside" in North America and Europe, with Cheston's background in the Asian region being advantageous for the retailer.
However, Morgan Stanley and Citi analysts downgraded their rating on Lovisa earlier this week due partly to the loss of Herrero's international experience.
The source: Macquarie research
