Morgan Stanley lowers LVMH price target on Fashion & Leather Goods concerns

Morgan Stanley reduced its price target on LVMH to EUR510 from EUR560, maintaining an Equalweight rating, citing expectations of declining sales in the Fashion & Leather Goods division and adverse FX impacts; the firm anticipates pressure on cross-border spending will lead to earnings estimate cuts across the luxury sector. Several other firms have also recently downgraded LVMH or reduced price targets due to concerns about a slowdown in the U.S. market, challenges in key divisions, and reduced demand from Chinese consumers, leading to revised earnings forecasts for 2025 and 2026.

Analysis

LVMH faces significant headwinds, underscored by Morgan Stanley's recent price target reduction on its stock (EPA:MC) to EUR510.00 from EUR560.00, alongside a maintained Equalweight rating. This adjustment is driven by an anticipated 7.5% year-over-year organic sales decline in LVMH's crucial Fashion & Leather Goods division for the second quarter, exacerbated by what Morgan Stanley terms a "double-whammy of operating deleverage and adverse FX." The company's shares have already reflected this pressure, declining nearly 18% year-to-date and trading near a 52-week low. While Morgan Stanley observed that U.S. operations in May and June were "in line to slightly 'less bad'" than April and that the business outlook has not further deteriorated since mid-May, the firm also stated LVMH appears to be "underperforming the rest of the industry." This cautious sentiment is broadly shared; Barclays downgraded LVMH to Equalweight with a €550 target, citing a U.S. market slowdown, challenges in key divisions including spirits and beauty, and consequently cut its fiscal year 2025 earnings per share forecast by 16%. Similarly, a prior Morgan Stanley downgrade to Equalweight, with a price target of €590, highlighted a weak start to 2024, underperformance across all divisions, and forecasted sales and operating margin contraction for 2025 due to diminished Chinese consumer demand. Bernstein, while maintaining an Outperform rating, also reduced its price target to €625, citing negative growth forecasts for Fashion & Leather Goods and other sectors, leading to below-consensus EPS forecasts for 2025 and 2026. Collectively, analysts anticipate that Q2 pressure on cross-border spending will likely lead to earnings estimate cuts across the luxury sector, although InvestingPro analysis suggests LVMH stock may be undervalued and notes the company maintains a strong financial health score.

Key Decisions for Investors

• Investors should closely monitor LVMH's upcoming Q2 results and revised consensus estimates, particularly for the Fashion & Leather Goods division's performance and management commentary on U.S. and Chinese consumer demand.
• Given the stock's decline near its 52-week low and the divergence between widespread analyst downgrades citing operational headwinds and some indicators of potential undervaluation, it is prudent to reassess LVMH exposure and overall risk tolerance within portfolios, especially considering expected sector-wide pressures.
• Evaluate the persistent risks from adverse foreign exchange movements and operating deleverage on LVMH's profitability, and carefully weigh whether current market sentiment adequately prices in these challenges against the company's fundamental financial health and long-term brand strength before making new investment decisions or adjusting existing positions.