On Monday, Citigroup downgraded Tiffany (TIF) stock to “neutral” from “buy” and reduced its target price to $100 from $115 per share. We expect Tiffany’s sales and earnings to return to growth in the second half of 2019. However, the growth rate might not be impressive. Lower tourist spending, especially from Chinese tourists, and uncertainty due to the US-China trade war will likely hurt Tiffany’s sales.

Citigroup analyst Paul Lejuez cited similar concerns. He expects Tiffany’s top and bottom line to benefit from easy YoY (year-over-year) comparisons. However, lower tourist spending will likely remain a drag and hurt Tiffany’s sales.

Citigroup Downgraded Tiffany Stock, Challenges Persist

Tiffany missed analysts’ sales estimates in the past three quarters. The company’s sales fell in the past two quarters. During the last reported quarter, Tiffany’s worldwide comparable sales fell 5%. Management blamed lower tourist spending across the Americas and Japan for the weakness. Unfavorable currency exchange rates also remained a drag.

We expect Tiffany’s top line to stay low in the second quarter. Persisting challenges will likely hurt the company’s net sales. Tiffany’s bottom line is expected to decline in the second quarter, which reflects lower sales, margin compression, and tough YoY comparisons.

Sales and earnings could recover

Despite the downgrade, most of the analysts covering Tiffany stock continue to recommend a “buy.” Analysts’ positive outlook on Tiffany stock stems from an expected recovery in sales and earnings in the second half of fiscal 2019. Tiffany’s business investments are expected to support long-term growth. Tiffany is up against easy comparisons in the second half of the year. The company’s sales and earnings stayed low during the same period last year. Tiffany’s sales increased 3.7% in the third quarter of 2018, while its sales fell 1.0% in the fourth quarter.

On the earnings front, business investments dragged Tiffany’s EPS down in the second half of 2018. The company’s adjusted earnings fell 3.8% in the third quarter, while its earnings were flat in the fourth quarter of fiscal 2018. Analysts expect Tiffany’s sales to mark mid-single-digit growth in the second half of fiscal 2019. However, weakness in the first half will likely take a toll on the company’s fiscal net sales growth.

Tiffany’s bottom line is projected to mark double-digit growth in the second half of fiscal 2019 due to improved sales and easy comps.

Analysts expect Tiffany’s sales and earnings to continue to decline in the second quarter.

So far, Tiffany shares have risen 16.5% this year. However, additional upside in the stock seems limited due to sales and earnings headwinds.

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