The European luxury goods sector is showing renewed signs of strength, buoyed by surprisingly positive third-quarter results from LVMH Moët Hennessy Louis Vuitton. This performance has rekindled investor confidence, suggesting that a multi-year rally in high-end European firms may continue, despite previous concerns regarding stagnating sales, price increases, and global trade tensions. The Stoxx Luxury index experienced a significant daily gain of 6.4% following LVMH’s earnings announcement, its best performance this year, and saw further modest increases in subsequent trading days.
Analysts Express Optimism for Key Luxury Brands
Major financial institutions are increasingly bullish on select European luxury stocks. Swiss investment bank UBS has identified several companies with potential for upside, maintaining “Buy” ratings for Brunello Cucinelli, Prada, Burberry, Richemont, and Ferrari. Notably, UBS upgraded its rating on LVMH to “Buy” as well. Deutsche Bank shares this optimistic outlook, recommending Burberry, Hermès, and LVMH. Analysts at Deutsche Bank observe a swift shift in investor sentiment towards the luxury sector as the third quarter progressed, accompanied by upgraded ratings and price targets for various companies.
Brunello Cucinelli: A “Calm but Resilient” Growth Story
UBS has set a price target of 123 euros for Brunello Cucinelli, representing a substantial premium to its recent closing price. While acknowledging investor disappointment over a lack of guidance upgrades for 2024, UBS analysts highlight the company’s “calm but resilient” long-term growth as a unique attribute within the sector. They anticipate Brunello Cucinelli will achieve double-digit sales growth and modest margin expansion this year, indicative of its “quality nature.” The narrowing valuation premium, coupled with sector-wide uncertainty, is expected to support the stock as investors seek quality investments. Bernstein analysts echo this positive sentiment, raising their price target to 121 euros and noting Brunello Cucinelli’s strong performance on multi-brand online platforms. They view the recent price correction as an opportune moment to invest in a high-quality, defensive luxury name.
Burberry: Turnaround Strategy Shows Early Promise
Deutsche Bank significantly increased its price target for Burberry by 25%, shifting its rating from “Hold” to “Buy” with a new target of £1,500. This upgrade followed encouraging first-quarter results that indicated a 4% year-on-year sales increase in the Americas. CEO Joshua Schulman reported a strong global performance from local customers and sequential improvement across all regions. Despite a reported net loss of £75 million and a 17% revenue decline to £2.4 billion in the 2024-25 financial year, analysts forecast flat revenue for the current year as Burberry implements its turnaround strategy, “Burberry Forward.” Deutsche Bank analysts observe that this strategy is progressing well, with early indicators of success in sales figures and increased management confidence. The stock has already seen significant gains year-to-date, but Deutsche Bank believes further upside potential exists. UBS also holds a positive view, with a price target of £1,575, citing encouraging signs from the company’s new strategy.
LVMH: Exceeding Expectations in Third Quarter
LVMH’s shares experienced a notable surge following the release of its third-quarter earnings, which surpassed analyst expectations. The company’s third-quarter performance has rekindled positive earnings momentum, prompting UBS to upgrade its stock rating to “Buy” with a price target of 680 euros. Citi analysts also assigned LVMH a “Buy” rating and a 630 euro price target, characterizing the third-quarter results as a “ray of hope.” Bernstein noted that LVMH delivered positive results across all its divisions, maintaining an “Outperform” rating and a 700 euro price target. This optimism is supported by sequential improvements in local spending and the ongoing success of the turnaround at Tiffany & Co., alongside positive trends in champagne sales and improvements at Sephora. RBC Capital Markets also raised its price target for LVMH to 575 euros, maintaining an “Outperform” rating. They anticipate a recovery in the soft luxury category into 2026 and view LVMH as offering favorable risk-reward potential for investors looking to capitalize on this trend.
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