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On Thursday, Deutsche Bank adjusted its stance on Pernod Ricard (EPA:) SA (RI:FP) (OTC: PDRDY), upgrading the stock from Sell to Hold and increasing the price target to €140.00 from the previous €135.00.
This decision comes after a period of notable underperformance by the spirits company, with its shares dropping 24% since the initial downgrade on January 12, 2023. This decline has resulted in the stock underperforming the broader European market indexes, with a 21% lag behind the Stoxx 600 Food & Beverage index (SX3P) and a 47% fall compared to the index (SXXP).
The analyst from Deutsche Bank noted that the shares now appear to be broadly fairly valued, and the risk/reward balance seems evenly distributed at this point. Despite the upgrade, the firm acknowledges several ongoing challenges facing Pernod Ricard. These headwinds include normalization in the U.S. spirits market, market share loss in the U.S. to ready-to-drink (RTD) beverages, and economic and regulatory uncertainties in China.
Deutsche Bank has made a slight upward revision to its earnings per share (EPS) estimates for Pernod Ricard, increasing them by approximately 1%. However, these revised projections still sit around 5% below the consensus for the fiscal years 2024, 2025, and 2026. The bank’s less cautious view follows a period of weakness for Pernod and its industry peers, suggesting a more selective approach to the spirits sector moving forward.
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