JPMorgan downgrades Burberry to 'underweight'

(Sharecast News) - JPMorgan downgraded Burberry to 'underweight' from 'neutral' on Friday as it took a look at the European luxury goods sector. The bank said that after a "tough" 2024 and "volatile" 2025, its work suggests that 2026 should mark a year of stabilisation for the luxury sector.

It noted that for the first time in two years, it models a return to low single digit percentage growth for the sector in 2026, though this remains below historical averages of high single digits.

"The improvement should be supported by the easy base of comparison, a slight uptick in Chinese consumer confidence, and more product newness which should, at least partly, help to address the consumer fatigue in soft luxury," JPM said.

"However, with continued macro uncertainty, muted price/mix contributions and a consumer that is increasingly discerning, we anticipate polarisation among brands and categories to remain elevated."

The bank said it continues to sees jewellery and high end ready-to-wear as structurally outperforming categories in 2026, while leather goods should remain more mixed, with specific brands' performance highly dependent on execution around product assortments and strategies to re-engage with consumers.

In this context, it maintained overweight-rated Richemont as its top pick and placed it on 'positive catalyst watch'. It remained OW on Brunello Cucinelli, Prada and Zegna Group and upgraded Moncler to 'overweight' from 'neutral' and Ferragamo to 'neutral' from 'underweight' on improving momentum into Q4 and better outlook into 2026.

"Anticipating ongoing polarisation, we remain more cautious on the pace of reacceleration of sales and profitability at Kering and Swatch, reiterating the 'underweight' rating and placing the latter on 'negative catalyst watch' into FY25 results," it said.

"Similarly, we think consensus might be too optimistic on the improvements expected at Burberry for next year and beyond and hence we downgrade the stock to 'underweight' from 'neutral'."

The bank lifted its price target on Burberry to 950p from 850p.

At 1050 GMT, Burberry shares were down 2.5% at 1,144.50p.