HSBC has checked out of iconic raincoat maker Burberry Group PLC (LON:BRBY), downgrading its rating to ‘reduce’ from ‘hold’ as it believes the stock will underperform its luxury goods peer “for longer than expected by the market.”
The global bank also cuts its target price for the FTSE 100-listed firm to 1,580p, from 1,630p after reducing its earnings per share estimates by 8% for this year and 6% for next to reflect a fourth-quarter sales miss.
READ: Burberry's second half revenue struts lower as licensing and wholesale sales fall
In early morning trading, Burberry shares topped the blue chip fallers list, down nearly 3%, or 54p at 1,756p.
In a note to clients, HSBC’s analysts said: “Even if our PBT estimates are in line with consensus, we think Burberry’s sales and earnings performance will not be sufficient to sustain the stock’s demanding valuation.”
They also noted many uncertainties ahead of Burberry’s new CEO, Marco Gobbetti officially taking over in July, and said they “would sit this one out”.
The analysts added: “We also believe that the group needs new life in terms of design and merchandising and the jury is out on whether the 100% dedication of Christopher Bailey on design and a few external hires can suffice.”