’Bespoke opportunity’: RBC initiates Ermenegildo Zegna at Outperform

 RBC Capital Markets initiated coverage of Ermenegildo Zegna at Outperform with a $16 price target, saying the luxury group offers "a rare combination of attractive revenue growth (+7%) and a compelling margin expansion story." 

Analysts led by Nikolaos Lafioniatis said the combination drives sector-leading EBIT growth of 18% a year at a still attractive 21 times calendar 2027 estimated earnings. While the company’s shares are up roughly 30% year-to-date, the analysts said the "risk-reward remains attractive."

The analysts framed the stock setup as a "bespoke opportunity."

RBC forecasts revenue growth of 7% a year through fiscal 2030, about 2 percentage points ahead of the sector average. Its EBIT growth forecast is 11 points ahead of the sector. At 21 times earnings, the stock trades broadly in line with the sector average, which analysts said looks attractive on a growth-adjusted basis, since higher-growth luxury peers trade at a premium.

The bank sees EBIT margin rising to 13.7% by fiscal 2030 from 8.5% in fiscal 2025, driven by mix and self-help. It expects the Zegna brand to add about 160 basis points through greater made-to-measure penetration and price and mix gains, while self-help at Thom Browne and Tom Ford could add 700 and 750 basis points, respectively.

The Zegna brand should drive about two-thirds of the €168 million EBIT uplift, the analysts noted, with Thom Browne and Tom Ford contributing the rest. They said both are "post-peak headwinds," giving it confidence in their upward trajectory.

RBC called the client pyramid the "lever driving mix gains." Its top "Zegna Friends" tier makes up about 4% of clients but about 40% of revenue and is growing at double-digit rates, anchored by high-net-worth wealth creation. That makes revenue less exposed to discretionary cycles, the analysts said.

Made-to-measure, called Su Misura, is the primary premiumization lever, with RBC estimating about 15% of the mix by fiscal 2030. It requires no additional store investment, which the broker called a key productivity lever. RBC also sees price and mix upside across ready-to-wear categories, given Zegna’s lower average product prices than Brunello Cucinelli and Loro Piana.

In its sum-of-the-parts valuation, RBC values the Zegna brand at an enterprise value (EV) of €3 billion, or 13 times EV/EBIT, about 97% of the group’s current market EV. Applying 1.0 times EV/sales to Thom Browne and Tom Ford implies about 14% EV upside, which analysts said the current valuation doesn’t reflect.