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Luxury gap: Credit Suisse highlights turnaround potential in Burberry with rating upgrade

The Swiss bank also raised its target price for the FTSE 100-listed firm to 2,000p, from 1,650p, with Burberry shares strong gainers in mid=morning trading, up 1.9%, to 1,797p
Burberry bags
Aside from Burberry, the Credit Suisse analysts also upgraded their rating for US luxury peer Ralph Lauren Corp

Credit Suisse sees a “buying opportunity” in the shares of Burberry Group PLC (LON:BRBY) and has upgraded its rating for the blue chip luxury goods firm to ‘outperform’ from ‘neutral’ in a global sector review.

The Swiss bank also raised its target price for the FTSE 100-listed firm to 2,000p, from 1,650p, with Burberry shares strong gainers in mid morning trading, up 1.9%, or 34p to 1,797p.

READ: Burberry's first quarter trading well-received

In the note to clients, the Credit Suisse analysts pointed out: “Burberry has undergone the biggest management reshuffle since its 2002 IPO and we believe the brand is well placed to capitalise on the need for newness in luxury thanks to its apparel exposure.”

They added: “Margins are close to historical lows and the cost cutting plan in place should alleviate concerns about further earnings downgrades.”

And, the analysts concluded: “With sell-side positioning the most negative it has been since 2009, we think this creates a buying opportunity.”#

Ralph Lauren also gets a boost

Aside from Burberry, the Credit Suisse analysts also upgraded their rating for US luxury peer Ralph Lauren Corp (NYSE:RL) to ‘outperform’ from ‘neutral’, increasing its target price to US$111 from US$91.

The analysts said that “with the success of Coach, Gucci and Calvin Klein, investors are looking for the next turnaround story in the soft-luxury universe.”

They added that have identified Burberry and Ralph Lauren as their top premium/luxury turnaround picks, while the analysts also remain positive on Italy’s Tod's Group, but are cautious on European players Ferragamo, Hugo Boss, and US firm Michael Kors Holdings Ltd (NYSE:KORS).

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