Bank of America has upgraded Douglas AG to Buy, citing the stock's undervaluation despite a cautious outlook. BofA analysts believe much of the sector's slowdown and margin pressures are already priced in. The firm's assessment comes as European beauty demand is expected to stabilize, though competition remains fierce across various channels.

BofA anticipates a gross margin of around 44.1% for FY26, aligning with pre-boom levels, and an adjusted EBIT margin of roughly 7.3%. They've adjusted their earnings forecasts downward, predicting Douglas's earnings per share to be 7-12% below consensus estimates for FY26-FY28. The analysts suggest the valuation is now compelling, with risks already factored in.

Douglas is trading below seven times FY26 earnings, about 16% under peers, and has an equity free cash flow yield of approximately 14%. BofA set a price objective of €14.80, implying a 38% upside from current levels. The bank expects Douglas to generate roughly €267 million of post-lease free cash flow in FY26.

This upgrade reflects a belief that any positive developments could lead to a re-rating of the stock. Investors should watch for further details on Douglas's performance in its core markets, particularly Germany and France, and any shifts in the fragrance category, which accounts for over half of group sales.