Tiffany still has very attractive growth prospects in each of its regions worldwide, including the U.S. with its smaller-store concept and is increasing traction in a still immature Europe and Asia where China and other markets outside Japan are growing more rapidly than we thought.
While there may still be volatility in Japan as it works to recover, things were substantially better in the first quarter than we thought following the tragic events in March, and the rest of Tiffany's markets look much stronger than we thought as well.
Our rating on Tiffany remains at Buy. Our price target is raised to $96 from $92 based on a multiple of about 23 times on our 2012 estimate of $4.18, in line with its five-year high of 23 times and reasonable, in our view, given the strength of Tiffany's brand and the growth prospects it has in each of its regions worldwide, excluding Japan. Key risks to achieving our price target are deterioration in consumer spending and international risks.
It's all a matter of emphasis really. If you think that those key risks—deterioration in consumer spending and international risks—are more serious than the Caris & Co. analysts do, then the entire view on Tiffany's changes. One gets the feeling that this is a case of the micro-analysts not really having a handle on the macro-picture of the global economy. That "key risks" line is almost a throwaway.
I find it useful to think of Tiffany as a leveraged play on the global economy, which is increasingly skewed to rewarding the well-off. If the economy does well, and the rich keep getting richer, Tiffany does very well. But when the economy gets bad enough that the wealthier segments of the population feel the pinch, it's already too late to shut the barn door.
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