JEFFERIES: 4 reasons Tiffany will continue to shine

Shares of Tiffany & Co., the American luxury jewelry retailer, could rise further as the company's margins and earnings improve, according to Jefferies.

Tiffany shares have risen almost 15% this year.

"With a strong brand that has supported pricing power historically coupled with recent and future talent upgrades, we believe shares can still rise from here," said a team of Jefferies analysts led by Randal J. Konik.

Their investment outlook was based on four catalysts.

Fashion jewelry comeback

Tiffany is succeeding in its efforts to revive customer interest in fashion jewelry.

"The reinvigoration of fashion jewelry is underway, visible to us (and consumers), and beginning to show in the numbers," they said.

"Last quarter, fashion jewelry posted a modest increase year-over-year and sterling silver stabilized with sales up slightly due to the popularity of the Return to Tiffany Love Collection."

Tourism growth

Tourists have long been a major source of sales for Tiffany, accounting for about 25% of total US sales and 40% of sales in its flagship New York store.

"While challenges exist on the tourism front, travel and spending data indicate trends are stabilizing or improving," Jefferies said. "Total international passengers traveling to the US increased +1.0% y/y for the most recent fiscal quarter measured."

Pricing power

Despite competition, Tiffany has built a strong brand with enough pricing power to protect margins.

"With a higher-income consumer that is particularly strong given the recent rise in equity markets and well-positioned with the potential for lower personal income taxes," Jefferies said, "we believe TIF is one of a few retailers under our coverage with clear pricing power."

Growing market share

Tiffany has grown its international market share, and looks set to maintain its growth.

"Tiffany has used its strong brand name to gain share in the market," they said. "Given the market that Tiffany operates in, along with a strong brand that affords significant pricing power, the company is not susceptible to Amazon or Walmart."

Finally, Jefferies said Tiffany also trades below peers both on a P/E and EV/EBITDA basis.

The company is expected to release its next quarterly earnings report on Friday. Previously, it reported a worldwide drop in comparable store sales of 2%, owing to exchange rate effects, during the holiday season of the two months ending December 31, 2016.