Investing.com — Morgan Stanley (NYSE:) lifted its rating on LVMH (EPA:) stock to Overweight from Equal Weight, citing “materially improved” prospects for the luxury fashion giant and company-specific factors.
The upgrade comes despite challenges that LVMH is expected to face in 2025, including difficulties with certain brands and divisions such as Dior and Wines & Spirits, which may impact profitability.
According to Morgan Stanley, the US market, where LVMH has significant exposure, is showing a sequential improvement in demand, which is anticipated to support the company’s sales.
Furthermore, while the recovery in Chinese consumer demand may not be immediate, recent trends have been encouraging. Luxury brands such as Richemont (SIX:) and Burberry (LON:) have reported less severe declines or stabilization in sales in China, which could bode well for LVMH.
Among company-specific factors, Morgan Stanley pointed to positive developments within LVMH’s Fashion & Leather Goods division, with brands like Loewe, Loro Piana, and Rimowa continuing to grow.
More importantly, the desirability of the Vuitton brand, which accounts for a substantial portion of the group’s profits, is expected to increase and gain market share.
“Anecdotal feedback is that the Vuitton brand is off to a solid start to the year, partially a function of the successful launch of the Murakami collection,” analysts led by Edouard Aubin noted.
In addition, they expect that the Watch & Jewellery division will improve, with Bulgari and Tiffany poised to benefit from various factors, including the Year of the Snake celebrations in China.
Morgan Stanley’s team said there is also potential for a positive shift at Dior, with rumors that Loewe’s creative director Jonathan Anderson may be appointed to the same role at Dior.
“Overall, industry professionals we speak with would view such a development as positive, should it materialize,” analysts said.
From a valuation perspective, LVMH’s stock is trading at a forward PE ratio of 24.8x, which is within its 10-year range but at a significant discount compared to Hermes.
Morgan Stanley set a LVMH price target of €820, indicating a 14% upside to the current share price.
The firm acknowledges that its bullish view on LVMH could face risks. These include temporary factors driving recent industry gains, such as US post-election spending or a pull-forward of Chinese New Year purchases, potentially leading to weaker Q1 2025 sales.
Additional concerns include potential tariffs on European luxury goods, continued negative Chinese luxury spending in 2025, and the possibility of slowing momentum for Vuitton in the coming quarters.
