Investment bank reveals stock picks for a world that is ready to 'go out'

Published Tue, Jan 5 20211:56 AM EST

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

A "yearning to go out" will boost several luxury and beauty stocks in 2021, according to Piper Sandler analysts, who have raised a number of price targets in the sector. Luxury fashion groups as well as beauty retailers are expected to see upswings, according to analysts Erinn E. Murphy and Matthew Egger's research note, as venues re-open and people start to socialize more after almost a year of stay-at-home orders due to the coronavirus pandemic. "We see the luxury consumer leading spending as we progress throughout 2021," the analysts wrote in a note published Sunday, as they named a number of stocks to watch. Their picks include Ulta Beauty and Estee Lauder , which owns brands such as Clinique and Bobbi Brown. Ulta's CEO Mary Dillon said in December that its skin care products had seen increased sales as people enjoyed in-home pampering. The Piper Sandler note identified "yearning to go out" as one of five themes for global lifestyle brands. "We see opportunity for the going-out / reopening trade to continue. While the 2020 spending pendulum swung from experiences to things, we see 2021 as having more balance between things & experiences as they start to resume in a post-vaccine world. We see the beauty space as ripe for replenishment," the analysts stated. Piper Sandler raised its price target for luxury consignment retailer The RealReal from $19 to $25, and upgraded Versace-owner Capri Holdings from $26 to $56. It expects Capri's margins to increase due to better AUR, or Average Unit Retail — which refers to an item's average selling price — as well as fewer discounts. In July, Capri said it would close up to 170 stores in the next two years, mostly from its Michael Kors brand, which would further boost margins, the analysts said. Piper Sandler forecast Capri's margins to reach the mid-teens by 2023, which it said would increase earnings per share by $4.70 or more. Versace is likely to increase the number of its stores, the analysts noted, stating: "We are seeing evidence of reaccelerating store growth for the Versace brand – a trend that is reminiscent of the Michael Kors 'go-go' days (a la 2011-2014), which could help support overall revenue growth." Capri bought Versace in 2018 for $2.1 billion, including debt. Risks for Capri included challenges with lease negotiations and its exposure to wholesale (around 36% of sales). Other stock picks included shoe company Steve Madden and designer fashion website Revolve . Coach-owner Tapestry is also a pick due to its accessible price points and demand for handbags rebounding post-pandemic, the analysts said.

Oscar Wong | Moment | Getty Images

A "yearning to go out" will boost several luxury and beauty stocks in 2021, according to Piper Sandler analysts, who have raised a number of price targets in the sector.

Luxury fashion groups as well as beauty retailers are expected to see upswings, according to analysts Erinn E. Murphy and Matthew Egger's research note, as venues re-open and people start to socialize more after almost a year of stay-at-home orders due to the coronavirus pandemic.

"We see the luxury consumer leading spending as we progress throughout 2021," the analysts wrote in a note published Sunday, as they named a number of stocks to watch.