On Wednesday, Morgan Stanley adjusted its outlook on LVMH Moet Hennessy Louis Vuitton SE (EPA:MC) (OTC:LVMUY) stock, reducing the price target from EUR 760.00 to EUR 715.00, while retaining an Equalweight rating. The revision reflects lowered expectations for the company's financial performance in the coming years.
The firm revised its revenue and EBIT estimates for LVMH downward by approximately 2% and 3% for 2024, and 3% and 4% for 2025, respectively. The most significant revisions were made in the Fashion & Leather Goods (F&LG) division, where growth forecasts were adjusted to a 1% increase in the third quarter of 2024, down from the previously expected 6%. This change is attributed to weakening trends in the Chinese market, which the modest improvements in the American and European markets have not offset.
The analysis pointed to recent tax-free spending data, which indicated a year-over-year and five-year slowdown in July. The Chinese cluster, having contributed more than 100% of the growth in the key F&LG division since the summer of 2023, has seen a downturn in demand, which is considered significant due to its previous strong performance.
The valuation of LVMH has experienced a decline, dropping from about 26 times forward price-to-earnings (PE) earlier in the year to approximately 22.5 times based on the new estimates. Despite this de-rating, the correlation between valuation multiples and the F&LG division's organic sales growth (OSG) remains strong. Morgan Stanley's revised OSG expectations for the F&LG division are 1.5% for 2024 and 5% for 2025, suggesting that the valuation multiple is likely to stay in the low twenties.
In other recent news, LVMH Moët Hennessy Louis Vuitton SE reported a modest increase in revenues for the first half of 2024, with organic growth of 2%, reaching €41.7 billion. Despite a challenging global market, the company maintained a strong operating margin of 25.6% and increased its free cash flow by 74% to €3 billion. However, profit from recurring operations saw an 8% decline compared to the previous year, totaling €10.7 billion.
The company declared an interim dividend of €5.5 per share, reflecting confidence in its financial stability. Despite reduced champagne demand impacting the Wines & Spirits division, the company saw improvement in the US Cognac market. The Fashion & Leather Goods and Sephora divisions continued to grow, with the latter recording record sales in several regions.
Net debt for LVMH stood at €12.2 billion at the end of June, and the company remains cautious about the second half of the year forecasts. These recent developments indicate that LVMH is navigating a complex global market with strategic focus on its core brands and markets.
InvestingPro Insights
In light of Morgan Stanley's revised outlook on LVMH, a closer look at real-time data and insights from InvestingPro provides a broader perspective on the company's financial health and stock performance. LVMH has demonstrated resilience with a strong gross profit margin of 68.53% over the last twelve months as of Q2 2024, underscoring its ability to maintain high profitability amidst market fluctuations. Furthermore, the company's dividend growth of 25.08% during the same period reflects its commitment to shareholder returns, having increased its dividend for 3 consecutive years and maintained payments for 27 consecutive years.
The stock's low price volatility, as highlighted by InvestingPro Tips, suggests that LVMH shares are relatively stable investments. This stability is particularly noteworthy given the company's position as a prominent player in the Textiles, Apparel & Luxury Goods industry. Additionally, LVMH's cash flows have been sufficient to cover interest payments, indicating sound financial management and a moderate level of debt.
Investors considering LVMH's stock should note that it is trading near its 52-week low, with a price of $147.63 at the previous close, which may present a potential entry point. The company's market capitalization stands at a robust $359.53 billion, and with analysts predicting profitability this year, LVMH appears poised for continued success. For those seeking further insights, InvestingPro offers additional tips on LVMH, which can be found at https://www.investing.com/pro/LVMUY.
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