2023.12.01 12:27
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Morgan Stanley downgrades LVMH rating as luxury demand deteriorates, ending six years of bullish sentiment.

Luxury demand deteriorates, Morgan Stanley downgrades LVMH rating to "Equal-weight" and lowers target price to 790 euros. This week, HSBC also lowered expectations and price targets for the luxury goods industry. LVMH's third-quarter revenue was lower than expected, with organic revenue growth slowing to 14%. LVMH's stock price has fallen by 28.8%.

In the context of global economic slowdown and consumers tightening their belts, from LVMH to Kering Group, the repeated "cold water" poured on the market all points to one reality: luxury goods are not selling well.

On December 1st, Morgan Stanley downgraded LVMH from "overweight" to "equal weight" with a target price of 790 euros, marking the first downgrade of LVMH's rating by Morgan Stanley in 6 years.

Morgan Stanley analyst Edouard Aubin pointed out in the report that concerns about weak demand in the luxury goods industry led them to downgrade LVMH's rating and lower the target price from 860 euros to 790 euros, below the market consensus of 842 euros. The report stated:

We believe that the demand for the entire luxury goods industry in the fourth quarter may further deteriorate, and LVMH's start in 2024 may be difficult. We expect the stock price to fluctuate sideways in the coming months.

Not only Morgan Stanley, earlier this week, HSBC also lowered its expectations and price targets for the luxury goods industry, stating that European luxury stocks cannot withstand an economic downturn. UBS also recently downgraded LVMH's rating to neutral with a target price of 770 euros, expressing concerns about the outlook.

As of the time of writing, LVMH fell 0.11% to 699.60 euros. LVMH is still up 1.61% year-to-date, but it has fallen 28.8% from its high of 901 euros earlier this year.

In October, LVMH announced its third-quarter earnings report, with revenue of 19.96 billion euros, lower than analysts' expectations of 21.14 billion euros. Organic revenue growth, relying on existing businesses, increased by 9% year-on-year, but the growth rate of organic revenue in the first three quarters of this year slowed to 14%.

Wall Street News noted that this is the first time this year that LVMH's revenue has fallen short of expectations, and the third quarter is also the slowest quarter of revenue growth. Revenue in the first and second quarters both grew by 17%, while the growth rate in the third quarter was almost half of the previous two quarters.

Jean-Jacques Guiony, CFO of LVMH, stated after the release of the third-quarter report that after three years of rapid growth, the company's growth is now moving towards a level more in line with historical averages. When it comes to the outlook for luxury goods, Jean-Jacques Guiony believes that high-net-worth clients around the world are facing some pressure, especially with the significant weakness in consumption in the United States this year.

At the same time, the capital market's enthusiasm for luxury stocks is also cooling down. On September 1st, just over four months after LVMH became the first European company with a market value exceeding $500 billion, Danish pharmaceutical company Novo Nordisk, which has gained popularity with its weight-loss drugs, surpassed LVMH in market value at the close of trading, making it the highest-valued listed company in Europe.