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Bear of the Day: Luxottica Group (LUX)

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Luxottica Group LUX is the world leader in the design, manufacture and marketing of high quality eyeglass frames and sunglasses in the mid and premium priced market segments. The Manufacturing segment of the company offers its products under proprietary brands, such as Ray-Ban, Oakley, Vogue Eyewear, and Arnette; and licensed brands, including Giorgio Armani, Brooks Brothers, Burberry, Chanel, Coach, Michael Kors, Prada, Ralph Lauren, Tiffany & Co, Tory Burch, Valentino, Versace and more. The Retail Distribution segment operates prescription eyewear stores primarily under its retail brands, including LensCrafters, Sunglass Hut, OPSM, Laubman & Pank, Oakley, David Clulow, and GMO; and licensed brands, such as Sears Optical and Target Optical.

The company was founded in 1961, is based in Milan Italy and employs almost 80,000 people. The stock is the Bear of the Day after being downgraded to a Zacks Rank #5 (Strong Sell) and after the company cut 2016 guidance.

Luxottica is valued around $23 billion and has a Forward PE of 24. The stock sports Zacks Style Scores of “D” in Value, due to its high end valuation. The stock has not had a pleasant year as its down over 30% from its high last July at $74 a share, to now $48.50. While some investors might be buying the dip, the company’s last earnings report along with falling estimates might force most to wait.

Q2 results

Only July 25th the company actually beat on both the top and bottom line. However, Luxottica cuts its revenue outlook for fiscal year 2016, saying it now expects +2-3% instead of the previous +5-6%. They also cut net income to “inline” with fiscal year sales.

On a presentation the company said that the sun season is rebounding after a soft start, but investors weren’t impressed as the stock traded down after EPS. Since the report, the stock has been treading water and falling estimates aren’t helping the situation.  

Estimate Revisions

Over the last 30 days, estimates have been revised lower for all time frames. For fiscal year 2016, the numbers have been taken down 13%, from $2.31 to $1.99. For 2017, estimates are now seen at $2.15, down from $2.34 or 8%.

A Better Option

If you’re looking at Luxottica as a medical supply play, then perhaps Haylard Health (HYH - Free Report) would be a better choice. Haylard is a Zacks Rank #1 (Strong Buy) that sells surgical and infection prevention products for the operating room. The company was founded in 2014, has 12,000 employees and is headquartered in Georgia.

The company has a market cap of $1.6 billion and a Forward PE of 20. The stock sports a Zacks Style Score of “B” in Value.

On August 3rd the company beat EPS by 9 cents and beat on revenue estimates. Revisions to earnings estimates have spiked higher over the last year. For fiscal year 2016, estimates have been revised 10% higher over the last month, while 2017 has seen a 9% jump.

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