On Wednesday, Citi reaffirmed its Buy rating on LVMH (EPA:LVMH) Moet Hennessy Louis Vuitton SE (MC:FP) (OTC: OTC:LVMUY) stock, maintaining a price target of EUR887.00.
Despite the company's second-quarter results revealing a sequential slowdown in organic sales growth for the group and its Fashion & Leather (F&L) segment, Citi remains optimistic about the luxury goods company's prospects.
LVMH's group organic sales growth decelerated to 2%, and F&L to 1%, in the second quarter of 2024, falling short of the consensus estimates of 3% for the group and 2% for F&L.
Additionally, the company experienced greater-than-expected EBIT margin pressures in the first half of 2024, with group margins decreasing by 180 basis points year over year to 25.6%, and F&L margins down by 170 basis points to 38.8%. These results were slightly below the consensus projections of 26.0% for the group and 39.1% for F&L.
The stock's performance has somewhat reflected these challenges, showing a year-to-date decline of 6%, in contrast to a 1% gain in the broader luxury sector. Despite this, Citi highlighted several positive factors, including sustained positive sales to Chinese customers and a strong increase in operating free cash flow attributed to improved working capital and cognac inventories.
Citi's analysis also provided insights into the short and long-term outlook for Chinese demand and the factors contributing to margin pressures, such as foreign exchange rates and exceptional growth in Japan at a lower price index with a higher variable cost base. Citi anticipates that consensus forecasts for LVMH's full-year 2024 group sales and EBIT may be revised downwards by a low single-digit percentage.
In summary, while acknowledging the limited visibility on the recovery scenario for the second half of 2024 and the potential for first-half results to disappoint, Citi maintains its Buy stance on LVMH shares.
In other recent news, LVMH Moet Hennessy Louis Vuitton SE has seen a target price reduction from UBS, due to concerns about margin resilience amidst sluggish luxury sector trends.
The bank's analysts anticipate a 2% earnings per share decrease for LVMH for fiscal years 2024 through 2026, mainly due to pressure within the Fashion & Leather Goods and Wines & Spirits divisions. In contrast, Goldman Sachs (NYSE:GS) maintains a positive outlook, predicting a 3.0% increase in sales for the first quarter.
LVMH has also made headlines with the acquisition of Swiss clock manufacturer L'Epee 1839, a move to strengthen its presence in high-end watchmaking. LVMH's watches division leader, Frederic Arnault, praised L'Epee 1839's exceptional skill in creating mechanical art objects. This acquisition follows LVMH's recent purchase of French bistro Chez l'Ami Louis, indicating a focus on experiential luxury offerings.
Regarding the company's financial performance, first-quarter sales of €20,694 million closely aligned with market projections. Despite a 2% decrease compared to consensus, this figure marked a 1% increase from UBS's estimates. These are recent developments that investors are likely to follow closely.
InvestingPro Insights
In the context of Citi's positive outlook on LVMH Moet Hennessy Louis Vuitton SE, InvestingPro data and tips provide additional depth for investors considering the luxury giant's stock. With a robust market capitalization of $352.39 billion and a P/E ratio standing at 21.48, LVMH displays significant financial heft in the luxury market. The company's impressive gross profit margin of 68.8% over the last twelve months as of Q4 2023, supports Citi's optimism regarding the firm's ability to maintain profitability despite recent margin pressures.
InvestingPro Tips highlight LVMH's consistent dividend growth, with dividends raised for 3 consecutive years and maintained for 27 consecutive years, reflecting a strong commitment to shareholder returns. Moreover, the company's stock has been noted for its low price volatility, which might appeal to risk-averse investors. With a dividend yield of 1.79% and a notable dividend growth of 28.88% in the same period, LVMH appears to be a promising candidate for those seeking stable income alongside capital appreciation.
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