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Investing.com -- Deutsche Bank (ETR:DBKGn) has updated its stance on several European luxury stocks, cutting target prices and downgrading key names as concerns over sustained demand recovery deepen.
The bank's European luxury analyst Adam Cochrane flagged growing uncertainty over the sector’s near-term outlook, warning that the fourth quarter recovery in 2024 may have been an outlier rather than the start of a sustained uptrend.
The bank now expects core FX-adjusted (cFX) revenue growth in the luxury sector to reach just 2% in 2025, down three percentage points from earlier forecasts.
The revised 2025 outlook includes 1% growth in the first half of the year and 4% in the second half. For 2026, Deutsche Bank has lowered its growth estimate by two percentage points to 5%.
Cochrane noted that while tariffs are unlikely to have a major impact—given that companies can offset the effects with low- to mid-single-digit price increases—broader macroeconomic headwinds are more worrying.
Weak equity markets and a deteriorating global economic environment are seen as factors that could continue to undermine consumer confidence and delay any sustained recovery in luxury demand.
Valuations across the sector remain high, trading at approximately 32 times projected 2025 earnings, with a premium of around 13 times compared to the broader market.
Against this backdrop, Deutsche Bank has made a series of changes to its stock recommendations and price targets.
Among the most notable adjustments is the downgrade of Richemont (SIX:CFR) to “hold” from “buy,” with its target price cut to CHF150 from CHF175.
Similarly, Kering (EPA:PRTP) has been downgraded to “hold” from “buy,” and its price target reduced from to €205 €340.
LVMH (EPA:LVMH) remains rated “hold,” but the target has been lowered to €580 from €695. Moncler also retains a “hold” rating, with a target price trimmed to €60 from €67.
Conversely, Hermès has been upgraded to “buy” from “hold,” reflecting greater confidence in its relative resilience. Its target price has been raised to €2,550 from €2,220.
Burberry (LON:BRBY) holds its “buy” rating, although the price target has been sharply lowered to 900p from 1,400p.
Meanwhile, Ermenegildo Zegna Group sees its target price cut to $9 from $11.50, though no rating change was provided in the bank’s summary.
Cochrane pointed out that previous assumptions of a demand bottom in the third quarter of 2024 may have been premature.
He warned that softer U.S. trends flagged in recent company updates and pre-close calls suggest a more fragile backdrop. Deutsche Bank now considers the luxury sector’s recovery path to be more volatile and protracted than initially thought.
In light of these developments, Deutsche Bank has identified Hermès and Burberry as its top picks within the sector, citing stronger positioning and brand resilience in a challenging market.