Why Ermenegildo Zegna Stock Tumbled by Over 13% Today
Key Points
It was socked with an analyst downgrade on the last trading day of the week.
The pundit behind the move expressed concern about two of the company's brands, among other critiques.
Ermenegildo Zegna (NYSE: ZGN) stock wasn't fashionable at all for a great many investors on Friday. A recommendation downgrade from a prominent bank sent the menswear specialist's shares down sharply in price, to the point where they closed the trading session more than 13% lower.
From buy to hold
The downgrading party was Bank of America Securities' Daria Nasledysheva. In her latest Zegna update, she changed her recommendation to neutral from the previous buy. Accompanying this, she also cut her price target slightly to $11.20 per share from $11.50.
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According to reports, Nasledysheva still considers Zegna to be a successful turnaround story. In her view, the company has shifted its strategy from being a purveyor of formalwear into a top luxury leisurewear label.
Strategic shifts are never easy, and the Bank of America analyst expressed concern that the company's Thom Browne and Tom Ford brands might be growth laggards. She added that Zegna could also find it challenging to increase margins, particularly given recent C-suite changes.
At the start of the year, the company pulled the lever on several previously announced C-suite changes. Most prominently, Ermenegildo "Gildo" Zegna relinquished his CEO role while retaining his position as chairman of the board of directors. He has been replaced by Gianluca Tagliabue, who previously held the CFO and COO titles.
The cut of its jib
Fashion is, of course, fickle; however, from what I've seen, Zegna is doing a rather admirable job of staying relevant throughout all of its brands. That succession seems to be going smoothly too (although it's early days), so I'd be more optimistic on the stock's scope for improvement than Nasledysheva.
Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.