Louis Vuitton Moet Hennessy (EPA:MC) has been upgraded back to 'buy' after two years by UBS as it believes the long-awaited positive earnings momentum is "now back".
This was demonstrated in the quarterly results posted yesterday, which "showed that the actions taken by the company to put its brands within the crucial F&LG [fashion & leather goods] division back on track are paying off".
F&LG is the group's largest division, containing brands such as Christian Dior, Givenchy, Celine and Fendi, and representing around 80% of operating profits.
"Despite LVMH's historical resilience, the business underperformed its peers over the past two years, largely driven by a volume decline, which combined with ongoing re-investments in product quality and space expansion, drove operating deleverage.
"However, we believe that the self-help measures introduced by LVMH (step-up in creativity, product innovation, lower price points) combined with strict cost management and slowing space expansion, will drive a stabilisation in margins in 2025 and a return of positive EPS momentum."
The other divisions, including Sephora cosmetics and the likes of Bulgari and Tiffany jewellery, offer "optionality".
During the past two year, 2025 estimates have come down by 40%, with group margins back to pre-Covid levels.
The sector context "undoubtedly remains complex", but the Swiss investment bank's analysts believe that the underlying improvement in sales momentum "will drive an eventual pick up in margins, and a return of EPS momentum, which luxury stocks tend to trade on".
UBS increased its share price target to €680 alongside the upgrade, based on UBS's first sales and EPS upgrade to estimates in two years, aligning with the wide analyst consensus.