Story
Swatch Group Upgraded to Buy by Kepler on Earnings Recovery Hopes
Summary
Kepler Cheuvreux raised its rating on the Swiss watchmaker to Buy from Reduce and increased its price target, citing stronger sales, improving profitability, and earnings estimates that are well above market consensus.
Kepler Cheuvreux has upgraded Swatch Group to Buy from a previous Reduce rating, arguing that an anticipated earnings recovery positions the Swiss luxury watchmaker for a significant valuation re-rating. The brokerage also raised its price target on the stock to CHF 225 from CHF 180.
Rationale for the Upgrade
In a note to clients, Kepler highlighted several positive catalysts supporting its more optimistic view. The firm pointed to stronger-than-expected local-currency sales growth, bolstered by the successful launch of the Royal Pop collection in the lower- and mid-tier segments.
Other key drivers include:
- Higher price points at Omega, Swatch's largest brand.
- Improving demand for the Breguet brand following its strategic repositioning.
- Easing macroeconomic headwinds, including the strength of the Swiss franc, U.S. tariff uncertainty, and elevated gold prices.
AdKepler also noted that management's improved approach to cost controls, inventory management, and capital allocation has reduced previous concerns over the company's execution.
Revised Forecasts and Valuation
Reflecting this improved outlook, Kepler has raised its earnings-per-share (EPS) forecasts for Swatch by approximately 11% for the 2027-2028 period. The brokerage's revised estimates now stand around 40% above the current market consensus for 2026-2028, suggesting significant room for future earnings upgrades if the company continues on its current trajectory.
Kepler stated that Swatch continues to trade below its book value, a result of recent earnings disappointments and investor tensions. However, the firm believes a series of positive earnings surprises could help narrow this valuation discount. The new CHF 225 price target would value the stock at roughly 16 times its estimated 2028 earnings and approximately one times its book value.
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