Company Reports

We are maintaining our fair value estimate of EUR 670 for wide-moat LVMH as the company reported an expected slowdown in growth trends in the first quarter. We view shares as modestly overvalued at current levels.

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Dior and Loro Piana. In wines and spirits LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari and Tiffany in branded jewelry.

We are maintaining our fair value estimate of EUR 670 per share for wide-moat LVMH as the company reported solid 2023 results, just slightly ahead of our estimates. Revenue for the full year was up 9% and 13% organically, delivering 10% organic growth in the final quarter. Profit from recurring operations was up 8% with slight margin pressure, notably with the lower-margin selective retailing division outperforming other segments and slight margin pressure in fashion and leather goods.

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Dior and Loro Piana. In wines and spirits LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari and Tiffany in branded jewelry.

We are maintaining our fair value estimate of EUR 640 per share for wide-moat LVMH as the company reported a moderated pace of growth in the third quarter. Constant-currency growth was 9%, a deceleration from 17% delivered in the first half. The fashion and leather goods division, the biggest and most profitable in the group, grew by 9% at constant currencies versus 20% in the first half. The wine and spirits division was particularly weak with a 14% constant-currency decline, largely driven by cognac weakness in the U.S. market. Perfumes and cosmetics sales were up 9% and watch and jewelry sales were up 3% with better performance of jewelry versus watches and stronger sales at Bulgari (which has stronger exposure to China) than Tiffany. Sales in selective retailing, the least profitable division of the group, were up 26% in the quarter, in line with the first half.

We are maintaining our fair value estimate for wide-moat LVMH as the company reported solid first-half results. Whereas demand in Asia, as expected, led growth, on a rather easy comparison base, demand trends in the United States weakened further, also in line with our thinking. Further, operating income came slightly under pressure (50-basis-point decline). We view shares as expensive at current levels.

We are increasing our fair value estimate for wide-moat LVMH to EUR 640 from EUR 590, as we incorporate the time value of money effect and slightly better expectations for 2023 sales and profits into our models.

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (17% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari and Tiffany in branded jewelry.

We are maintaining our fair value estimate of EUR 590 for wide-moat LVMH as the company reported full-year results in line with our estimates (revenue slightly higher and operating profit slightly lower than we forecast). We view shares as expensive at current levels.

We are increasing our fair value estimate for wide-moat LVMH to EUR 590 from EUR 550, largely to reflect euro depreciation and slightly better-than-expected underlying business trends in 2022 following strong third-quarter revenue figures. Shares are trading somewhat above our fair value estimate.

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (17% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari and Tiffany in branded jewelry.

We are increasing our fair value estimate for LVMH to EUR 550 per share as the company reported a solid first-half 2022 despite lockdowns in China and a challenging comparison base. The increase reflects higher profitability expectations for its fashion and leather division this year, currency tailwinds, and time value of money effect.

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (17% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari and Tiffany in branded jewelry.

We are maintaining our fair value estimate of EUR 510 for wide-moat LVMH as the company reported strong first-quarter results, led by its largest and most profitable division, fashion and leather, where sales were up 30% on an organic basis. The positive trends from the past year have continued into the first quarter and the group so far, hasn’t seen the adverse effects of rising inflation on consumer purchases. So far, there is also no observed elasticity to implemented price increases either (Louis Vuitton had a mid-single-digit pricing impact in the first quarter and will benefit from a further mid-single-digit price increase in the quarters to come).

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (17% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari and Tiffany in branded jewelry.

We are not making any changes to our fair value estimates for our luxury and apparel coverage list due to Russia-Ukraine armed conflict. The luxury industry’s exposure to the Russia and Ukraine is small, accounting for a low-single-digit percentage of revenue, by our estimates. We believe that the conflict is unlikely to dampen consumer confidence in China (primary long-term growth driver) or the U.S. (driver of growth in recent years). European consumer sentiment (low-20% of industry’s sales) may be affected, should energy-related inflation accelerate meaningfully as a result of conflict; however, Morningstar's view is that the likelihood of gas delivery disruption to Europe from Russia is low. That said, most luxury names in our coverage look expensive to us, and we would recommend investors await a wider margin of error for investment in the sector.

We expect to increase our fair value estimate for wide-moat LVMH by a mid- to high single digit following strong full-year results, that exceeded our expectations. Like previously reported peers Richemont and Burberry, LVMH saw an acceleration in demand for the last quarter of the calendar year. Brand momentum, especially in its fashion and leather division, which accounts for over 70% of operating profit, remained strong. However, as for its peers, we believe current growth is helped by transitory tailwinds (savings from foregone experiences, strong asset prices, and the psychological need for reward after stress) that we are weary to extrapolate into the future.

We are increasing our fair value estimate for LVMH to EUR 394 per share to account for time value of money and the continuation of strong performance in third-quarter 2021. Organic growth came in at 11% for the quarter compared with 2019, in line with the first half and slightly decelerating from 14% recorded in the second quarter. The deceleration was mainly led by the watches and jewellery division (1% growth in the third quarter versus 2019 and 5% growth in the first half versus 2019), with some weakness for Bulgari in Asia due to increased coronavirus containment measures, which may be a negative read-across for Richemont’s jewellery divisions, and which have high exposure to the region (although those have been gaining market share so far through the pandemic and may cushion the blow). The most profitable division fashion and leather goods, which comprises Louis Vuitton and Dior, continued to perform strongly with 38% organic growth from 2019 levels, in line with the first half of the year. Management noted a significant portion of growth in past years for the division (midteens on average since 2017 compared with 7% from 2010 to 2016) and Louis Vuitton in particular, was due to positive mix effect, rather than pure volume, which should help preserve the exclusivity perception of the brand. We believe continuing double-digit growth of the main brand is baked into its current valuation, which we view as optimistic.

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (17% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari in branded jewelry.

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (17% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari in branded jewelry.