Key Highlights
Days before a crucial financial disclosure, Kering's stock saw a significant drop on Monday as Morgan Stanley retracted its optimistic stance on the luxury giant.
The investment bank downgraded its rating from "Overweight" to "Equal Weight" and reduced its 12 to 18-month price target from €330 to €320. Following the announcement, Kering's stock fell by over 3%.
Analysts stated in their research report: "Our discounted cash flow model indicates a 15% upside potential for the stock, but this no longer implies relative outperformance."
Kering's stock price peaked at €320.50 on January 12, but has since dropped approximately 16% by Monday's trading. After an astonishing 10.90% single-day rebound on February 10, it subsequently fell by 5.04% and 6.35% on March 2 and 3, respectively.
Gucci's Recovery Remains Elusive
Gucci continues to be a major obstacle. Morgan Stanley's latest forecast indicates that the brand is expected to contract by 6.2% in Q1 2026, worsening from a previous expectation of a 5% decline. By 2026, Gucci's annual revenue is projected to reach €5.95 billion, increasing to €7.67 billion by 2028.
Analysts admitted: "This is a classic case where brand promotion has far outpaced the actual numbers." Industry research with European retail partners shows, "There are initial signs of improvement in brand awareness, but no substantial commercial recovery has been observed yet."
A more pessimistic outlook also reflects weak results from field research in Q1 and Kering's exposure in the Middle East market, which accounts for about 5% of total revenue.
Critical Timing and Outlook
This rating downgrade comes at a crucial time. Kering plans to release its Q1 2026 financial report on April 14, followed by a Capital Markets Day presentation on April 16. These events will be key tests of whether the executive transformation narrative can resonate with investors.
The company expects overall sales to reach €18.3 billion by 2028, representing an approximate 25% growth from €14.7 billion in 2025. By 2028, the consolidated operating margin is expected to rise from 12.5% in 2026 to 18.4%.
Morgan Stanley's optimistic scenario targets €480, contingent on a strong recovery for Gucci and an increase in group margins to 25.9% by 2028. The pessimistic scenario is set at €175, assuming the brand's new creative direction fails to achieve commercial success. Options market pricing indicates a roughly 28.9% probability of the stock exceeding €320 within the next 12 months, while the probability of falling below €175 is 17.1%.
The bank noted that continuing organizational transformation under CEO Luca de Meo's leadership, along with Gucci demonstrating genuine commercial momentum, would be two potential catalysts for a rating upgrade.
It is worth noting that Morgan Stanley upgraded Kering to a preferred stock in October 2025, calling it the top choice for luxury goods investment in Europe and praising the industry for its "creative explosion."