Shares of Watches of Switzerland Group Plc (LSE: WOSG) fell more than 3% on Friday after Jefferies downgraded the luxury watch retailer from “buy” to “hold.”
The broker argued that room for further valuation expansion has become increasingly limited at current price levels, despite raising its price target significantly.
Jefferies lifted its target price to 740 pence from 440 pence, reflecting a shift to a sum-of-the-parts valuation methodology that separately prices the UK and US businesses.
“Our downgrade to Hold reflects a reducing runway for valuation expansion (with today’s 13.1x cal 2027 PE comparing to a post COVID range of 7x to 14x) at a time when the US outlook will likely provide a reducing source of positive surprises,” Jefferies said.
The broker’s previous target was based on a calendar 2026 price-to-earnings multiple of 10.3x, while the updated approach rolls forward to 2027 earnings using a group multiple of 13.1x.
The revised methodology applies a 10x multiple to the UK business, which Jefferies said is “aligned with the average for FTSE250 retailers,” while assigning a 16x multiple to the US operations.
Jefferies expects full-year results, due on 14 July, to “confirm North American demand buoyancy,” though it believes “reducing valuation attractions and inflation tailwinds” now justify a more cautious stance.
On the US business, Jefferies highlighted fiscal 2025/26 revenue growth excluding foreign exchange effects of 22.7%, before the impact of the 53rd week, supported by approximately 20% growth at Coin and a 2.4% contribution from the four-month consolidation of D&D.
The broker noted that the company has “now started lapping the heightened US price hikes pushed since Liberation Day by major brands,” with cumulative price increases of 12.6% across Patek Philippe, Rolex, Cartier and Omega, adding that Patek Philippe reduced prices by a high-single-digit percentage in February.
Jefferies believes current market forecasts for US revenue growth of around 14% in fiscal 2026/27 and 8.5% in fiscal 2027/28 “seems fair rather than too conservative,” compared with its own projections of 14.5% and 8%.
On the UK side, Jefferies said “despite extensive industry lobbying, no evidence has emerged of a potential reintroduction of duty-free shopping,” with recent political developments suggesting such an outcome “is a very remote one within this Parliament.”
The broker believes the company remains exposed to “a mixed domestic demand outlook,” with the UK business expected to account for around 45% of group revenue by fiscal 2027/28, leaving it “vulnerable to a more pressured consumer.”
Jefferies forecasts revenue of £1.80 billion in fiscal 2025/26, rising to £1.97 billion in fiscal 2026/27 and £2.10 billion in fiscal 2027/28, compared with £1.65 billion in fiscal 2024/25.
The broker projects earnings per share rising from 41.6 pence in fiscal 2024/25 to 43.0 pence, 53.6 pence and 58.3 pence across the following three financial years.
Jefferies identified key risks including lower product allocations from luxury watch brands, increased competition for acquisitions, potential new US tariffs, and a possible consumer shift away from the hard luxury segment.
