Stock of the Week: Tiffany and Co (TIF)

11 ก.ย. 2020

The stock of the week continues the luxury brand trend of last week’s stock, Farfetch. While that company specializes in delivering luxury goods directly to customers, Tiffany specializes in the complete opposite.

Tiffany & Co’s Business:
Tiffany and Co, an American Luxury Retailer, founded by Charles Lewis Tiffany in 1837, have opulent buildings across the world, driving tourists to these iconic buildings as part of the experiencing of buying Jeweler – except they’re not.

The Coronavirus has hammered the company as traffic in their retail stores dropped, causing a massive drop in revenues. This retail presence is key to its success. For example, their iconic New York store (the one in the photo) accounts for 10% of the worldwide sales in 2017,2018, and 2019.

Last year, LVMH agreed to buy Tiffany and Co for $16.2 Billion. However, with the pandemic decimating sales across the world, LVMH backed out of the deal. Tiffany is now suing LVMH for a breach of contract. On what grounds LVMH has been able to break, the deal can be researched somewhere else. However, that’s what makes Tiffany quite interesting. Does Tiffany have the sparkle to shine during this turbulent period, or should you wait for more information and stability?

Tiffany and Co’s Catalysts:
The obvious one is the LBMH deal. Analysts predict a revised agreement of around $105-$120 per share to suppose to the original $136 LVMH planned to buy the company. The stock price is currently at $114, indicating the markets are still pricing in a deal.
The second catalyst is the further reopening of the economy. As stated above, Tiffany is heavily reliant on foot traffic into its retail stores as it is part of the experience. As the economy opens, tourisms will hopefully pick up, drawing more foot traffic to stores like Tiffany’s
Thirdly – the brand. They still have the brand that people know and love. This catalyst goes hand in hand with the first point. The pairing with LVMH further rounds off the brand.

Tiffany and Co’s risks:
Tiffany’s main risk is twofold: LVMH fully backing out of the deal, alongside a slow reopening of the economy. If both these factors materialize, this will be detrimental to the stock price of the company.

Tiffany and Co’s Catalysts:
If you’re willing to risk it for the biscuit – the stock is essentially perfectly priced, which gives some upside to astute investors who want to hold a good brand. However, if you believe in the risks, you may want to hold off the stock. But it should be on everyone’s watchlists.