Company Reports

We are maintaining our fair value estimate of EUR 162 for wide-moat EssilorLuxottica as the company reported solid sales in first-quarter 2024. We believe high exposure to optical products reduces the cyclicality of EssilorLuxottica, but that is well reflected in the share price, which we view as expensive at 28 times forward FactSet consensus earnings.

We are maintaining our fair value estimate for wide-moat EssilorLuxottica as the company reported full-year 2023 revenue largely in line, but operating profit was somewhat below our estimates. We view shares as expensive at current levels.

We think EssilorLuxottica will benefit from intangible assets (strong brands, distribution channel access, and research and development platforms) and cost advantage, enabling it to generate economic profits well into the future.

We are increasing our fair value estimate for wide-moat EssilorLuxottica from EUR 155 per share to EUR 162 per share, largely as a result of time value of money after the company reported some deceleration in sales growth in the third quarter. Sales growth was 5.2% in the quarter at constant exchange rate, and currencies were a meaningful headwind (revenue at actual exchange rates down by 1.6%). This was a deceleration from 8.2% in the first half. Deceleration was quite broad-based across the regions. We see shares as fairly valued at current levels.

We think EssilorLuxottica will benefit from intangible assets (strong brands, distribution channel access, and research and development platforms) and cost advantage, enabling it to generate economic profits well into the future.

We maintain our EUR 155 fair value estimate for wide-moat EssilorLuxottica as the company reported solid first-half results. Its revenue growth rate at constant exchange rates continued at a high-single-digit pace with 8% in the second quarter and 8.2% in the first half. Growth was led by the Asia-Pacific region with a 23.9% increase in the second quarter, boosted by greater China where growth was over 50%, was also boosted by Stellest (preventive care-lens products targeting children). Growth in Europe, Middle East, and Africa was also strong at 10.6%. Both regions accelerated sequentially in the second quarter. Growth in Latin America was also at a high single digit for the quarter and the quarter. Sales in North America, a problematic region for many luxury names in our coverage due to a very high comparison base, were helped by nonrecurring drivers (COVID-19 time-savings and payment checks) that decelerated, but remained in positive territory in the second quarter, with 2.3% growth at constant exchange rates. Sunglasses retail in the region, which tends to be more discretionary, turned negative in the quarter. We believe high exposure to less cyclical optical prescription product categories, at over 70% of revenue, should protect EssilorLuxottica from economic headwinds to an extent. The adjusted operating margin expanded by 10 basis points despite inflationary headwinds due to good cost controls.

We are maintaining our fair value estimate of EUR 155 for wide-moat EssilorLuxottica following a strong first quarter with total revenue up 8.6% over the first quarter of 2022 at constant exchange rates. Both professional solutions and direct to consumer had strong year-over-year growth, with 7.7% and 9.4% at constant exchange rates, respectively. We currently view shares as overvalued.

We are maintaining our fair value estimate for wide-moat Essilorluxottica as the company reported full-year results largely in line with our estimates. Revenue came in 2% higher than our estimates, but operating profit was bang in line as adjusted profitability progression was a bit slower than expected (16.8%, up 70 basis points from 2021 and lower than our 17.2% estimate). Shares look slightly overvalued at current levels.

We think EssilorLuxottica will benefit from intangible assets (strong brands, distribution channel access, and research and development platforms) and cost advantage, enabling it to generate economic profits well into the future.

We are maintaining our fair value for wide-moat EssilorLuxottica as the company reported solid third-quarter revenue numbers. Sales were up by 8.2% in the third quarter and 8.8% in the first nine months in constant currency and comparable terms. This compares to 6% in our full-year projections, which we may increase slightly after this strong showing, without material impact on fair value estimates. Shares are approximately fairly valued at current levels. We view EssilorLuxottica as one of the more resilient names in crises, given the high exposure to the optical category (75% of revenue), which is to an extent nondiscretionary.

We are maintaining our fair value estimate for wide-moat EssilorLuxottica as the company reported solid growth and margin expansion in the first half of the year. Revenue was up 9.1% on a comparable basis in the first half (7% in the second quarter), versus our 8.8% full-year assumptions. Adjusted operating margin expanded by 100 basis points versus pro forma first-half 2021 and reached an 18.4% level (our full-year assumptions call for 17.2% (110-basis-point expansion).

We are maintaining our fair value estimate for wide-moat EssilorLuxottica as the company reported solid first-quarter revenue with 11.5% comparable growth. This compares to the 8.8% we forecast for the company for the full year, and was positively affected by the comparison basis from last year, when sales in Europe and Latin America were still hurt by the lockdowns. Sales in EMEA were up 18% on constant exchange rate basis while sales in Latin America were up 21.2%. The North American market, one of the main drivers of performance last year, performed rather strongly (up 7.8% at constant exchange rates). Comparable sales in retail channels were up 3% and sales to the independent eyecare providers saw some slowdown. We anticipate a slowdown in this market in 2022, given very strong growth in 2021, helped by reduced spending on experiences and stimulus packages (up 12.7% from 2019 levels versus 4% growth in the region pre-coronavirus). Sales in Asia were negatively affected by COVID-19 lockdowns in China and were up 3%. Despite severe traffic declines in the Chinese market, Stellest (an innovative myopia preventive care lens product) enjoyed higher volume sales in the first quarter of 2022 than the first half of 2021.

We think EssilorLuxottica will benefit from intangible assets (strong brands, distribution channel access, and research and development platforms) and cost advantage, enabling it to generate economic profits well into the future.

We expect to increase our fair value estimate for wide-moat Essilorluxottica by a high single digit following better-than-expected profitability delivery in 2021. Management also guided for a stronger profitability lift to 2026, with the operating margin reaching 19%-20% from 16.1% in 2021 (on an adjusted basis, excluding acquisition-related expenses). This compares with the 17% operating margin we forecast for the firm by 2025 and is more ambitious than midterm operating profit growth of 1-1.4 times revenue announced at the capital markets day in 2019. Margin progression would mainly be a result of synergies between Essilor and Luxottica (EUR 300 million-350 million targeted for 2021 have been exceeded, EUR 400 million-600 million should be delivered in the next two years), and synergies with recently acquired Grandvision. Essilor & Luxottica synergies so far have exceeded our expectations (EUR 337 million) and we may revise our synergy assumptions upward from the lower end of guidance (EUR 450 million currently in our models). Expected profit improvements are to come from operating leverage, with the gross margin largely stable and includes reinvestment in the business. Mid-single-digit top-line growth assumptions were maintained. We believe the current share price already incorporates a more ambitious margin progression.

We are expecting to increase our full-year assumptions for wide-moat Essilorluxottica slightly, as the company reported a strong rebound in revenue and profits in the first half of the year from a slump in 2020. This will not result in a material change to our fair value estimate. The company is now forecasting a mid-single-digit percentage sales increase over 2019 levels and margin expansion (excluding Grandvision, consolidated from the second semester) versus our forecast of 1.4% growth and 40 basis points of margin expansion.

We are increasing our fair value estimate for wide-moat EssilorLuxottica to EUR 131 from EUR 120 as a result of time value of money effect and expectations for a slightly faster recovery from the coronavirus crisis. We now expect 2021 revenue and adjusted operating profit to be slightly above 2019 levels (company’s goal for profitability and revenue at constant exchange rates to at least match 2019 levels) if the Grandvision acquisition impact is excluded. We still expect the merger to go through in the second half of the year, with the main markets cleared for antitrust purposes. We see the acquisition as value-neutral for the company.

We think EssilorLuxottica will benefit from intangible assets (strong brands, distribution channel access, and research and development platforms) and cost advantage, enabling it to generate economic profits well into the future.

We are retaining our fair value estimate for wide-moat EssilorLuxottica after the company reported an in line set of numbers for 2020. Revenue dropped 17% for 2020, or 14.6% at constant exchange rate and operating margin came at 9.5% versus the 9.1% we forecast.

We think EssilorLuxottica will benefit from intangible assets (strong brands, distribution channel access, and research and development platforms) and cost advantage, enabling it to generate economic profits well into the future.

We are maintaining our fair value estimate for wide-moat Essilorluxottica as the company reported a significant improvement in third-quarter revenue trends. We may adjust our expectations for full-year revenue slightly downward given the new lockdowns in Europe but don’t expect this to have material impact on our fair value estimate.