Watches of Switzerland Group PLC (LSE: WOSG) dropped 3% to 707.6p after Jefferies downgraded the luxury watch retailer from ‘buy’ to ‘hold’ on Thursday.
The broker argued that a powerful rerating in the stock has left little room for further valuation expansion at current price levels.
Despite the downgrade, Jefferies raised its price target significantly to 740p from 440p, though that implies only 4% upside from where shares currently trade.
Analyst James Grzinic noted the shares now trade at 13.1 times calendar 2027 earnings, sitting close to the top of the post-Covid range of 7 to 14 times.
Grzinic added that the US outlook “will likely provide a reducing source of positive surprises,” signalling that the American tailwind driving the stock’s rise may be losing steam.
A strong American backdrop has powered the rerating, and Jefferies expects full-year results on 14 July to confirm buoyant North American demand remains intact.
US revenue grew 22.7% in the last financial year, excluding currency moves, supported by consumers absorbing major price hikes and a 40% rally in the S&P 500 from its April 2025 lows.
However, Jefferies warned that pricing support is now fading, with its monitor of US watch prices across Patek Philippe, Rolex, Cartier, and Omega showing cumulative hikes of 12.6% since 2025, with momentum moderating since September and Patek actually cutting prices in February.
The UK market offers no offsetting relief, with the broker seeing no evidence that duty-free shopping for tourists will be reintroduced, describing the prospect as “very remote within this Parliament.”
That leaves the mature UK business, accounting for roughly 45% of group revenues by 2027/28, exposed to a pressured domestic consumer with limited near-term catalysts.
Jefferies has shifted to a sum-of-the-parts valuation methodology, applying 10 times earnings to the UK operation in line with FTSE 250 retailers, and 16 times to the faster-growing US arm.
The broker’s upside scenario points to a share price of 925p if acquisitions, new store space, and a return of VAT-free tourist shopping combine to accelerate growth.
Conversely, the downside case sits at 427p, highlighting the meaningful risk range that surrounds the investment case at this stage of the cycle.
Despite the cautious headline move, Jefferies lifted its earnings forecasts, with per-share estimates rising 13% for financial year 2027 on projected revenue of £1.97 billion.
Key risks flagged by the broker include brands allocating less product to the retailer, competition for acquisitions, potential new US tariffs, and any broader shift in consumer demand away from hard luxury goods.
