Please ensure Javascript is enabled for purposes of website accessibility

Why Tiffany & Co. Shares Might Lose Their Luster

By Brian Pacampara – Mar 24, 2014 at 10:14AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Tiffany (TIF) slipped slightly in pre-market trading after Goldman Sachs downgraded the jewelry retailer from conviction buy to buy.

So what: Along with the downgrade, analyst Lindsay Drucker Mann lowered his price target to $100 (from $101), representing about 10% worth of upside to Friday's close. So while growth investors might be attracted to Tiffany's progress over the past year, Drucker Mann's call could reflect a growing sense on Wall Street that the stock is getting a bit ahead of itself.

Now what: According to Goldman, Tiffany's risk/reward trade-off isn't quite as attractive as previously thought. "The key drivers of our bullish view have been (1) robust gross margin expansion on the back of lower input costs and diminished negative product mix, (2) stepped-up free-cash conversion, and (3) a healthy comp sales dynamic, with ongoing strength overseas and a nascent acceleration in the US," noted Drucker Mann. "While the 4Q report reinforced our confidence on the comp story, it also brought to light that the margin and cash components we anticipated now seem like they will take a bit longer to materialize." When you couple those slightly lowered expectations with Tiffany's hot stock price, it's tough to disagree with Goldman's downgrade. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.