Pernod Ricard: Reopening Now Priced In, Downgrade To Neutral (Preview)
Rating Downgrade (RI FP) (Buy to Neutral)
Summary
We are downgrading our rating on Pernod Ricard from Buy to Neutral on valuation grounds after a 19.0% gain in 22 months.
A combination of its current valuation and forecasted earnings growth mean the stock's annualized return will likely be below 10%.
We assume a long-term Net Income growth of 7.0%, 2 ppt higher than the FY10-19 average and corresponding to the midpoint of targets.
We assume a 2024 P/E of 27x, which we believe appropriate for a cyclical industry and only 1x below the present and the pre-COVID peak.
With shares at €188.65, we expect an exit price of €214 and an annualized return of 6.6% (total of 21% by 2024) below our target.
Introduction
We are downgrading our rating on Pernod Ricard from Buy to Neutral on valuation grounds after a 19.0% gain in 22 months. Pernod Ricard stock has recently hit an all-time high and is now 8% above its pre-COVID peak.
We originally initiated a Buy rating on Pernod Ricard in August 2019, a few months before COVID-19 started to appear in …