Morgan Stanley Upgrades LVMH to Overweight Amid Positive Trends in Luxury Fashion

Morgan Stanley has upgraded LVMH (EPA:LVMH) from Equal Weight to Overweight, highlighting the luxury fashion giant's materially improved prospects despite challenges on the horizon for 2025.

Positive Outlook on LVMH's US Market Exposure

The upgrade comes amidst sequential improvement in demand from the US market, where LVMH holds significant exposure. Morgan Stanley's analysts believe this improvement will drive stronger sales growth, providing a boost to the luxury conglomerate's bottom line.

While China's recovery in luxury demand may take time, Morgan Stanley notes that recent trends in the region have been encouraging. Rivals such as Richemont (SIX:CFR) and Burberry (LON:BRBY) have seen less severe declines in China, suggesting that LVMH could benefit as Chinese consumer confidence continues to stabilize.

Challenges Ahead: Specific Brands May Face Headwinds

Despite the optimistic outlook, the analysts caution that LVMH may face headwinds in some of its key divisions, including Dior and Wines & Spirits. These segments may experience profitability pressures, impacting the overall performance of the group. However, Morgan Stanley remains confident in the company's ability to navigate these challenges due to its strong brand portfolio.

Growth Drivers: Fashion & Leather Goods and Watches & Jewellery

One of the main reasons for the upgrade is the positive momentum within LVMH's Fashion & Leather Goods division. Brands like Loewe, Loro Piana, and Rimowa are continuing to show growth, and the Vuitton brand, which is a major contributor to profits, is expected to gain further market share.

Anecdotal feedback suggests that Vuitton has had a strong start to the year, partly due to the successful Murakami collection launch, which has boosted its brand desirability.

Moreover, the Watch & Jewellery division, which includes Bulgari and Tiffany, is expected to see improved performance, benefiting from factors like the Year of the Snake celebrations in China, which typically boosts demand for luxury goods in the region.

Potential Shifts at Dior Could Fuel Growth

Morgan Stanley also notes that there is potential for a positive shift at Dior, with rumors circulating that Jonathan Anderson, creative director of Loewe, may be appointed to lead the brand's creative direction. If this happens, it could inject fresh energy into Dior, further boosting its prospects.

Looking Ahead: LVMH's Strong Position in the Luxury Sector

While LVMH may face specific challenges in 2025, its strong performance in fashion and watches & jewellery, alongside the potential for improvement in Dior and Vuitton, positions the company well for long-term growth. Morgan Stanley's upgrade underscores the resilience of LVMH and its ability to leverage global luxury trends to its advantage.

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