ZGN

We rate Ermenegildo Zegna N.V. (ZGN) as a Buy with a composite score of 66.0/100 at a current price of $11.10. The stock scores above average across the majority of our six quantitative factors and ranks #238 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in value (86th percentile) and quality (81th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (55/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Ermenegildo Zegna N.V. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 66.0/100 places it at rank #238 in our full 7,333-stock universe. At $3.3B in market capitalization, Ermenegildo Zegna N.V. is a mid-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue contraction of -4% combined with momentum at the 60th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 67% (+24.1pp vs sector) narrow to operating margins of 9% (+7.3pp vs sector) and net margins of 4.7%, yielding a gross-to-net conversion rate of 7%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $11.10, Ermenegildo Zegna N.V. appears undervalued relative to its fundamentals. Our value factor score of 86/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 34.5x (a 55% premium to the sector median of 22.3x), EV/EBITDA of 2.0x (discounted to peers), P/B of 2.9x, P/S of 0.4x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Medium uncertainty rating to Ermenegildo Zegna N.V.. The stock presents a balanced risk profile: the combination of leverage (91% D/E) and thin margins (4.7% net) amplifies downside risk. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: the combination of leverage (91% D/E) and thin margins (4.7% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 68th percentile and quality factor at the 81th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 67% provide a buffer against cost pressures; above-average stability (68th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Ermenegildo Zegna N.V.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 37.0%, and the balance sheet is managed within acceptable parameters (D/E: 91%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Ermenegildo Zegna N.V. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 1.59% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Ermenegildo Zegna N.V. receives a Buy rating with a composite score of 66.0/100 (rank #238 of 7,333). Our quantitative framework assigns a Narrow Moat (55/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 69/100.

Our analysis supports a constructive view on Ermenegildo Zegna N.V.. The combination of identifiable competitive advantages, medium uncertainty, and standard capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.