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Why Are Stock Traders Just Loving Tiffany Right Now? July 01, 2020 (0 comments)
New York, NY—Tiffany & Co. (TIF) has had its challenges in recent years: a revolving door in the management suite, a series of product flops, and a singularly stupid decision to shoot itself in the foot by jacking up prices on the silver products that kept its profit engines turning.
So why do stock traders think Tiffany stock is the best deal going?
For one thing, its stock is trading at $120, $15 a share below the $135 price agreed upon in its upcoming merger with LVMH. If the merger goes through—which at least this article on investor site Seeking Alpha thinks it will—there is profit to be made for experienced investors. LVMH tried to lower its offering price recently, citing Tiffany’s struggles in the current economic environment since the pandemic, but the jeweler remained firm and, because fundamentals of the acquisition go far beyond current conditions, LVMH backed down.
COVID notwithstanding, the retailer has been on a better track lately. Its T collection seems to be doing well—reminiscent of its heyday of highly-sought collections—and current CEO Alessandro Bogliolo clearly knows how to leverage both the megabrand status of the retailer and its long-term commitment to sustainability.
Related: Tiffany CEO Alessandro Bogliolo On What Sets The Brand Apart
Seeking Alpha offers some key reasons why it’s bullish on TIF:
- Jewelry has an ingrained desirability. Economic factors impact whether that desire is acted upon in the form of purchase, but the desire is still there.
- Tiffany has stellar brand recognition and is associated with elegance and luxury. Every woman and a lot of men know what “the little blue box” means.
- Tiffany still commands a huge share of the upscale jewelry market, especially in the United States. It’s not competing with Signet in the middle or with discounters, so it doesn’t need a huge footprint.
- Its balance sheet is stellar. For all its product woes, it’s got excellent cash flow and more cash than debt, which is—pardon the pun—gold in a retailer.
But Seeking Alpha says some macro issues do threaten the jeweler. These include:
- The coronavirus. An extended period of shutdown or if consumers are afraid to go out could bring sales down. Tiffany has a robust online presence and is an industry leader in that regard, but consumers do still like to make special-occasion purchases in person. Not being able to do so, whether that decision is made by or for the consumer, could hurt sales.
- Volatility in precious metals prices. The pandemic is driving gold up; it’s already nearing its peak and analysts are forecasting it to cross $2,000 by year’s end. The same situation has added volatility to other precious metals prices, and there’s also the potential for virus-driven supply chain interruptions.
- While Tiffany’s cash position is outstanding, it does have about $100 million in credit receivables: not enough to wipe out its cash surplus but enough to put a dent in the balance sheet if customers who are suddenly unemployed default on payments.