Citigroup initiated coverage of jeweler Tiffany & Co with a buy rating and a $50 price target, citing an expected return to sustained positive same-store sales in the fourth quarter.

Falling costs of diamonds, platinum and silver should help gross margins in the fourth quarter and drive a 100 to 200 basis points expansion over the next 12 months, Citigroup analyst Kimberly Greenberger wrote in a research note.

We believe TIF willbenefit from market share gains given capacity withdrawal (liquidations/storeclosures) beginning in 4Q09 as consumer spending stabilizes, the analyst wrote.

Affordably priced jeweler Zale Corp has been closing stores and liquidating some inventory in its bid to combat the economic slump, while others like Finlay Enterprises have filed for bankruptcy protection.

We estimate at least 5 percent of the $60 billion U.S. jewelry market will be up for grabs in 2010. In our view, TIF can capture at least 2 percent of this $3 billion slice over time given its strong brand recognition and trust, driving at least 5 to 6 percent U.S. store sales growth, she said.

Greenberger also sees a compelling growth opportunity for the high-end jeweler, compared with its peers, for expansion in the Americas, Europe and Asia, excluding Japan.

Shares of Tiffany closed at $38.51 Monday on the New York Stock Exchange. (Reporting by Fareha Khan in Bangalore; Editing by Himani Sarkar)

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