BofA Securities raises Ermenegildo Zegna stock price target to $10 on strong margins

Ermenegildo Zegna Group (ZGN) has received increased analyst confidence following strong Q2/H1 2025 results, with BofA Securities raising its price target to $10 (Buy) and JPMorgan initiating coverage with an Overweight rating and an $11 price target. The company's adjusted EBIT surpassed consensus by 4%, driven by robust performance and margin expansion in its core Zegna segment, despite underperformance in some non-core brands. This positive sentiment, alongside a 32.6% price return over six months, highlights Zegna's competitive advantages in the luxury market and continued execution.

Analysis

Ermenegildo Zegna Group (ZGN) is demonstrating robust performance in its core brand, leading to increased analyst confidence despite mixed results across its portfolio. BofA Securities has raised its price target to $10.00, citing strong execution and a reduced valuation discount, while JPMorgan initiated coverage with an Overweight rating and an $11.00 target. This optimism is fueled by first-half 2025 results where adjusted EBIT of €69 million surpassed consensus by 4%, driven almost entirely by the Zegna segment. The core brand's adjusted EBIT beat expectations by 22%, expanding its margin by 150 basis points year-over-year on the back of higher direct-to-consumer sell-through and operating leverage. However, this strength masks significant weakness elsewhere; the Tom Ford Fashion segment reported an operating loss of €19 million and Thom Browne's EBIT of €4 million also fell short, both impacted by wholesale pressures and higher costs. While the company's overall financial health is rated as strong, with a gross profit margin of 67.1%, this divergence in brand performance presents a key consideration. The stock, which has returned 32.6% over the past six months, currently trades at a 20.8x P/E, which BofA's new target suggests is a discount to its projected growth, implying a 24x multiple for a 16% three-year EPS CAGR.

Key Decisions for Investors

• Investors may find the stock attractive given the strong performance and margin expansion of the core Zegna brand, which accounts for 60% of the business, and the bullish sentiment from multiple analysts.
• It is critical to monitor the performance of the non-core brands, as the significant operating loss at Tom Ford Fashion and underperformance at Thom Browne represent a material drag on consolidated results that could offset the core brand's strength.
• Consider the current valuation of 20.8x P/E in the context of BofA's projected 16% three-year EPS CAGR, as the investment thesis relies on continued execution and margin improvement to justify a higher multiple.
• Watch for sustained organic and direct-to-consumer sales growth in upcoming quarters, as these metrics were key drivers of the positive earnings surprise and are vital for achieving the full-year EBIT forecast of €166 million.