On Friday, Citi adjusted its outlook for LVMH Moet Hennessy Louis Vuitton SE (OTC:LVMUY) (Euronext Paris:MC) (OTC: LVMUY), reducing the luxury goods company's price target from €830.00 to €789.00. The firm maintained a Buy rating on the stock despite the adjustment. The revision comes as Citi anticipates weakened demand in Asia excluding Japan, particularly China, and in Europe across most divisions during the summer. However, there is an expectation of improving demand in the U.S.
The new price target reflects lowered sales estimates for the fiscal years 2024 and 2025 by 1% and 4%, respectively, due to reduced constant foreign exchange (cFX) growth assumptions, primarily in the Wines & Spirits and Fashion & Leather goods divisions. Citi also noted slightly increased foreign exchange headwinds, which are projected to add pressure to the earnings before interest and taxes (EBIT) margins in the second half of fiscal year 2024 and potentially limit margin recovery in fiscal year 2025.
As a result of these factors, Citi has decreased its EBIT and earnings per share (EPS) projections for LVMH by 3% for fiscal year 2024 and by 6% and 8% for fiscal year 2025. The cut in estimates is also driven by the anticipation of a temporary corporate tax increase in France, where LVMH generates a significant portion of its profits. The French government plans to raise the tax rate to around 35% for large companies, and LVMH's effective group tax rate is expected to rise by approximately one percentage point.
The analyst's commentary highlights the various challenges LVMH is facing, including the impact of foreign exchange fluctuations and tax changes, on its financial performance. With the third quarter sales report scheduled for release on October 15, 2024, investors will be looking closely at the company's performance metrics and how they align with Citi's revised expectations.
In other recent news, LVMH Moet Hennessy Louis Vuitton SE has been facing a series of financial revisions amid a challenging global market. JPMorgan and Morgan Stanley have both reduced their price targets for LVMH, citing factors such as weakening Chinese consumer market and updated foreign exchange assumptions. JPMorgan has reduced its forecast for LVMH's Fashion & Leather Goods growth and overall sales growth, while Morgan Stanley has revised its revenue and EBIT estimates for the company downward.
Despite these adjustments, LVMH reported a modest increase in revenues for the first half of 2024, with organic growth of 2%, reaching €41.7 billion. However, the company saw an 8% decline in profit from recurring operations compared to the previous year, totaling €10.7 billion. This comes as the company navigates a complex global market with a strategic focus on its core brands and markets.
InvestingPro Insights
LVMH's financial metrics and market position offer additional context to Citi's revised outlook. Despite the challenges highlighted in the article, LVMH maintains a strong financial foundation. According to InvestingPro data, the company boasts a market capitalization of $353.83 billion and an impressive gross profit margin of 68.53% for the last twelve months as of Q2 2024. This aligns with one of the InvestingPro Tips, which notes LVMH's "impressive gross profit margins."
The company's P/E ratio of 23.45 suggests that investors are still willing to pay a premium for LVMH's earnings, reflecting confidence in its long-term prospects. This is further supported by another InvestingPro Tip, which indicates that LVMH is a "prominent player in the Textiles, Apparel & Luxury Goods industry."
Importantly, LVMH has demonstrated a commitment to shareholder returns, with an InvestingPro Tip highlighting that the company "has raised its dividend for 4 consecutive years." This is complemented by a current dividend yield of 1.82%, which may provide some comfort to investors during periods of market volatility.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for LVMH, providing deeper insights into the company's financial health and market position.
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