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On Friday, Barclays (LON:BARC) downgraded LVMH (EPA:LVMH) stock from Overweight to Equalweight, significantly reducing the price target to EUR550 from the previous EUR755. This adjustment reflects the analyst’s concerns about the potential deceleration in the U.S. market, which is viewed as a key growth driver for LVMH’s Fashion & Leather Goods (FLG) division.
The analyst from Barclays highlighted several factors behind the downgrade. First, there is a risk of the U.S. market slowing down, which could result in the FLG division remaining in negative territory for the fiscal year 2025. Despite these challenges, LVMH maintains impressive gross profit margins of 67% and operates with moderate debt levels, according to InvestingPro. Other brands within LVMH, such as Dior, are facing ongoing pressures which may delay their recovery, potentially causing LVMH to lag behind other high-quality competitors, as observed in the first quarter.
Furthermore, the analyst anticipates that the EBIT margin for the FLG division may not have reached its lowest point in the second half of 2024. A small sequential decline is expected in the first half of 2025, with the margin projected to fall to 35.0%, which is nearing the pre-Covid level, due to negative operating leverage.
Barclays also noted that divisions within LVMH that cater to aspirational consumers, such as the spirits and beauty sectors, could encounter additional challenges. In response to these concerns, the firm has adjusted its estimates and reduced its forecast for LVMH’s fiscal year 2025 earnings per share by 16%.
The downgrade and the revised price target indicate that Barclays sees limited short-term catalysts that could drive LVMH’s stock performance positively. The new target of EUR550 represents a significant decrease from the prior target, suggesting a more cautious outlook on the luxury goods conglomerate’s financial prospects. However, InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, with additional insights and 12 more ProTips available to subscribers.
In other recent news, LVMH has faced several adjustments from major financial firms. Morgan Stanley (NYSE:MS) downgraded LVMH’s stock rating from Overweight to Equalweight and reduced its price target to €590, citing a decline in organic sales growth and lower-than-expected performance across all divisions, particularly in Fashion & Leather Goods. The firm anticipates a continued decline in sales for the second quarter of 2025. Bernstein also revised its price target for LVMH from €800 to €625 while maintaining an Outperform rating, highlighting a projected downturn in growth and lower organic growth estimates across multiple divisions. Stifel downgraded LVMH from Buy to Hold but raised its price target to €710, noting limited potential for stock price growth after a significant appreciation. Stifel’s report expressed concerns over the lack of earnings upgrades and anticipated a transitional year for several of LVMH’s brands and divisions. These developments indicate a cautious outlook from analysts regarding LVMH’s near-term performance.
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