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Tiffany & Co Price Target Raised By Cowen On Encouraging Q2

Cowen raised the price target of Tiffany & Co. TIF 0.38% by $6 to $74 on "encouraging" second quarter results and improving sentiment.

Tiffany's second quarter EPS topped Street view by $0.12 on better-than-expected gross margin and less SG&A de-leverage. However, total comps decline of 9 percent was worse than Street's prediction of 7.8 percent fall, as most regions continued to see soft luxury spend by local and foreign tourists.

That said, the company also maintained its full-year outlook and free cash flow guidance of at least $400 million despite tough macro backdrop.

"We rate TIF Market Perform given we see limited upside to valuation as we expect macro global challenges and volatility on Chinese tourism globally to limit revenue & earnings growth in the near term," analyst Oliver Chen wrote in a note.

Chen would get constructive on TIF if he sees:

"(1) unit performance improving on more newness, particularly in <$500 price points where TIF has increased # of silver jewelry SKUs by +DD% vs. LY";

2) "new marketing driving better engagement performance, which continued to see softness in 2Q";

3) "on-going enhancement of in-store experience/customer engagement yielding better traffic/conversion"; and

4) "store comps improving on easier compares (+7% C/C in 2Q15; +1% C/C in 3Q15; and -5% C/C in 4Q15)."

Tiffany has deployed key strategic initiatives aimed at driving increased frequency of customer visits to its stores and higher conversion rate by optimizing store base, product assortment, marketing, and systems.

The analyst also acknowledged the company's long-term fundamentals, stable commodity costs and healthy free cash flow generation.

"We also see potential revenue upside to FY16 guide on retail environment improving in Asia/HK, U.S. luxury demand re-accelerating; and/or global Chinese spending regaining momentum on less F/X volatility/improving macro environment," Chen added.

At time of writing, shares of Tiffany were down 0.57 percent to $73.70.

Aug 2016Cowen & CompanyMaintainsMarket Perform
Aug 2016Deutsche BankMaintainsHold
Aug 2016CitigroupMaintainsNeutral

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