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Investing.com -- UBS upgraded luxury conglomerate LVMH Moët Hennessy Louis Vuitton SA to a “buy” from “neutral," citing a clear return of earnings momentum following a stronger-than-expected third quarter.
The brokerage lifted its 12-month price target to €680 from €513, implying a 33% upside from LVMH’s market price of €597.90 on Oct. 15.
UBS analysts said they had remained cautious for two years, waiting for signs of renewed earnings per share (EPS) growth, which they now believe has returned.
The brokerage’s forecast shows EPS rising 5% in FY25, 10% in FY26, and 12% in FY27, supported by corresponding sales growth of 2%, 5%, and 6%.
Group margins are expected to stabilise at 21.2% in FY25, close to 2019’s 21.4%, before gradually improving from 2027.
The research identifies LVMH’s Fashion & Leather Goods (F&LG) division as the main driver of the turnaround. The unit, which contributes about 80% of group EBIT, had underperformed peers in recent years due to declining volumes and higher reinvestment costs.
UBS said the company’s “self-help” strategy, including stronger product innovation, new entry-level price points, and tighter cost control, is beginning to deliver results. F&LG’s organic sales growth is projected to rebound to 5% in 2026, after a 5% decline in 2025, aligning it with sector trends.
UBS described the latest quarter as “thesis-changing,” with the F&LG division’s sales or profits shrank by 2%, but this was considered a positive surprise because the market was braced for a worse drop of 4%.
Other divisions also posted sequential improvements. The analysts said this performance, along with upcoming product launches at Dior, Loewe, Celine, Fendi and Givenchy, supports sustained brand momentum into 2026.
Beyond fashion and leather goods, the bank highlighted profit recovery potential in other units that together account for around 20% of EBIT.
The Wines & Spirits business showed a 1% organic sales gain, led by Champagne. Watches & Jewellery rose 2%, helped by Tiffany and Bulgari, while Selective Retailing advanced 7%, driven by Sephora’s U.S. performance.
On valuation, UBS’s new target of €680 reflects upgrades to earnings assumptions and a restored historical premium to peers.
The analysts derived their estimate from three approaches, a discounted cash flow valuation of €643, a sum-of-the-parts valuation of €669, and a relative multiples valuation of €726.
The DCF used an 8% WACC, 9.8% cost of equity, and 2.5% perpetual growth rate, incorporating a terminal EBIT margin of 26.5%, up from 24.5% previously.
UBS said LVMH’s valuation re-rating potential rests on its shift from store-led expansion toward volume-driven growth, expected to improve operating leverage and restore profitability.
The brokerage forecasts group EBIT of €17.7 billion in 2026, with an EBIT margin of 21.4%, rising to 22.4% in 2027 and 23.3% in 2028.
According to UBS, the third-quarter results and improving trajectory of the F&LG division signal the end of two years of earnings downgrades.
The analysts said the combination of creative reinvigoration, balanced pricing, and disciplined spending positions LVMH for a sustained recovery in margins and a return of investor confidence.