UBS announced on Tuesday that it has lowered its price target for EssilorLuxottica from 347 to 315 euros, while reaffirming its Buy recommendation. The bank argues that the current valuation fails to price in any potential success in the smart glasses segment.
Following a broad retreat across the consumer sector triggered by tensions in the Middle East—a region accounting for only about 1% of group sales according to UBS—the stock is currently trading at levels close to its intrinsic value prior to the launch of smart glasses (representing a P/E ratio of approximately 25x).
An "extreme" scenario
According to the bank, this pricing suggests the market is discounting a worst-case scenario in which the eyewear specialist's smart glasses prove to be a total failure, while competitors achieve rapid and massive adoption of their own technologies, and long-term growth in the core business is severely compromised.
Underestimated barriers to entry
UBS describes this market view as a "glass half empty" scenario, contending that it overlooks significant barriers to entry, notably production capacities, the density of the retail network, and the strength of the group's brand portfolio.
Even under a pessimistic hypothesis—including a 200-basis-point reduction in terminal growth and commercial success limited to only half of the baseline forecasts for smart glasses—the analysis concludes there is a 28% upside potential for the stock.
EssilorLuxottica is a global leader in the design, manufacture and distribution of ophthalmic lenses, frames and sunglasses. Formed in 2018, the company brings together the complementary expertise of two industry pioneers, one in advanced lens technology and the other in the craftsmanship of iconic eyewear, to set new industry standards for vision care and the consumer experience around it. Influential eyewear brands including Ray-Ban and Oakley, lens technology brands including Varilux® and Transitions®, and world-class retail brands including Sunglass Hut and LensCrafters are part of the EssilorLuxottica family.
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