Barclays Upgrades LVMH to Overweight, Claiming Yearly Plunge Creates Buying Opportunities

LVMH's share price has fallen by 29% since the beginning of the year, marking the worst annual start on record for the company. Barclays analysts, including Viktoria Petrova, upgraded LVMH's rating from equal weight to overweight in a report late Monday, citing that the market has underestimated the potential support from key brands like Tiffany and Dior turning around their performance.

LVMH has long been considered a barometer for the luxury goods industry. Investors' selling off of LVMH essentially reflects a revaluation of the industry's slowing growth, tightening consumer conditions, and the demand uncertainty brought about by potential war in Iran.

Valuation is the core reason for Barclays' shift to a bullish stance. Data compiled by Bloomberg shows that LVMH's current forward price-to-earnings ratio is about 19 times, below the average level of nearly 24 times over the past five years.

“As potential catalysts on the horizon point to an acceleration of growth, we believe the current level offers an attractive buying opportunity.”

This implies that Barclays is not judging the luxury sector to have recovered comprehensively, but rather believes that after a significant pullback in share price, LVMH's risk-reward has changed. If the improvements at Tiffany and Dior materialize, the market may reevaluate its growth resilience.

Market divergence remains evident. Berenberg analysts believe that Europe's flagship luxury sector may be in a structural downcycle, and advise investors to sell luxury goods stocks on any rebound. Berenberg estimates that compared to the levels of the past nine years, the luxury sector's valuation could still be reduced by 25% to 35% on average.