BofA Merrill Lynch has cut its stance on Burberry PLC (LON:BRBY) in its latest monthly luxury tourism report after cutting earnings per share estimates across the sector.
The US bank has downgraded the FTSE 100-listed group to ‘underperform’ from ‘neutral, while leaving its price objective unchanged at 1,800p, offering 8% downside potential to Burberry’s current share price of 1,925p, off 2.5% on Tuesday’s close.
READ: Burberry weak as Goldman Sachs cuts to 'sell' on luxury firm’s demanding valuation, higher investment expectations
In their note to clients, the BofA ML analysts pointed out that Burberry shares have re-rated 4x P/E points in 2019, which they see as “unjustified given limited visibility over timing & trajectory of potential brand turnaround.”
Overall, the analysts reduced their sector 2019-21 EPS assumptions by 3% on average, despite a currency upgrade.
They said: “The downgrades are driven entirely by the 'mid-cap' turnaround brands, where we expect ongoing margin pressure.”
The analysts pointed out: “Recent macro data from China has driven a re-rating in the sector, however fundamental data points more relevant to sector earnings have normalised.
“Asia was soft across the board in Feb, due to the shift in Chinese New Year, however it will likely improve in March. European and US data continues to soften; while not as important for sentiment, these markets will likely drive ongoing normalisation in sector revenue growth.”