Watches of Switzerland stock upgraded to Buy by Deutsche Bank

Deutsche Bank upgraded Watches of Switzerland (LON:WOSG) from Hold to Buy, setting a GBP4.50 price target, citing limited downside risk from U.S. import tariffs. The bank contends the market has overestimated potential negative impacts, as tariff-affected brands represent only about 12% of WOSG's gross profit, significantly mitigating overall earnings risk. Deutsche Bank's analysis supports an 11x price-to-earnings valuation, noting the company would still trade at approximately 9x earnings even under a severe downside scenario for tariff-impacted brands.

Analysis

Deutsche Bank has upgraded Watches of Switzerland (LON:WOSG) from Hold to Buy, establishing a GBP4.50 price target based on the assessment that market concerns over U.S. import tariffs are excessive. The bank's core thesis is that the potential negative impact on earnings is structurally limited, as the non-supply-constrained brands that would be affected by such tariffs account for only approximately 12% of the group's gross profit pool this year. This quantifies the exposure and suggests a significant de-risking of the company's overall performance. The GBP4.50 price target is derived from an 11x price-to-earnings multiple. Furthermore, Deutsche Bank's stress test indicates resilience; even in a severe downside scenario involving a 15% price increase and a 30% volume decline for affected brands by FY27, the company would still trade at an estimated 9x earnings, suggesting a substantial valuation floor.

Key Decisions for Investors

• Investors should reassess the perceived risk from U.S. tariffs, as the analysis suggests the impact is confined to a minor portion of the company's profit base, potentially making the stock oversold on this specific concern.
• The valuation appears compelling, with the target 11x P/E and a stress-tested 9x P/E floor suggesting a margin of safety and a potential entry point for those aligning with Deutsche Bank's 'Buy' thesis.
• Monitor any official U.S. tariff announcements and track sales performance of the non-supply-constrained brands in the American market to validate the thesis that demand is resilient and the financial impact is contained.