Luxury stocks just boomed — here’s how investment banks are playing the sector
Luxury stocks surged this week after French luxury conglomerate LVMH — a bellwether for the sector — posted a surprise return to growth for the third quarter, putting Europe’s high-end firms on course to continue a multi-year rally. The sector has boomed in recent years, but stagnating sales, price rises , and renewed trade tensions have fueled questions about the outlook for high-end goods. But the day after LVMH’s Tuesday earnings update, the Stoxx Luxury 10 index — which counts LVMH, Gucci owner- Kering and Ferrari among its constituents — closed 6.4% higher, marking its biggest daily gain since January and its second-best day this year. The index extended those gains with a modest rise on Thursday. Swiss investment bank UBS still sees upside potential for a handful of Europe’s luxury stocks. Its top picks, laid out in a note last week, are Brunello Cucinelli , Prada , Burberry , Richemont , and Ferrari, all of which have been given Buy ratings by the bank. On Thursday, UBS also upgraded LVMH stock to a Buy. Deutsche Bank is also bullish on certain names in the sector, including Burberry, Hermes and LVMH. “Investor sentiment on luxury has shifted quickly as we have progressed through 3Q,” the lender’s Adam Cochrane said in a note last week, as the bank upgraded its ratings and price targets on a slew of luxury names. Here’s how analysts are approaching the sector. Brunello Cucinelli UBS has a target price of 123 euros ($143) for Brunello Cucinelli stock — that’s a premium of more than a third on Thursday’s closing price. The bank’s analysts said in their note that although investors had been disappointed by a lack of guidance upgrades from the company in 2024, Brunello Cucinelli’s value “lies in its ‘calm but resilient’ LT growth, which is unique in the sector.” BC-IT YTD line Brunello Cucinelli share price UBS expects Brunello Cucinelli to post double-digit sales growth this year and “modest” margin expansion, which they said is indicative of the firm’s “quality nature.” “With valuation premium to the sector having narrowed, we expect the continued flight to quality to support shares given the low visibility in the sector’s recovery,” the bank’s analysts said. Analysts at Bernstein are also bullish on the stock, having raised their price target to 121 euros this week. “Brunello Cucinelli remains a notable outlier among luxury brands, with a full-price share on online multi-brand platforms that is closer to more ‘accessible’ brands … than European luxury brands,” they said. “The recent price correction offers the opportunity to enter a high-quality, defensive luxury name at a discount, even if it may take some time for investors to regain confidence in their story.” Burberry On Burberry, Deutsche Bank hiked its price target by 25% last week and upgraded its rating from a Hold to a Buy. Its new target on the stock is £1,500 ($2,014) — a notable premium on Thursday’s closing price of £1,196. Investors were cheered by Burberry’s fiscal first-quarter results, published in July, which showed a 4% year-on-year jump in sales in the Americas. “Our local customer has been strong globally and we have seen a sequential improvement in all regions,” CEO Joshua Schulman told reporters on an earnings call. In the 2024-25 financial year, Burberry posted a net loss of £75 million – a decline of 128% from the previous year. Revenue for the year fell 17% to £2.4 billion. With the company in the midst of implementing a turnaround strategy, analysts are expecting revenue to stay flat this year, according to consensus estimates provided by Burberry. “The execution of ‘Burberry Forward’ remains well on track and there are early signs of success,” Deutsche Bank’s analysts said in their note, pointing to improvements in sales figures and increased management confidence. BRBY-GB YTD line Burberry share price Shares of the British firm have been on a bull run, gaining over 20% year-to-date — but Deutsche Bank’s team insisted there was more upside potential for the stock. “Whilst the starting point is elevated we believe there is more to come,” they said. UBS, meanwhile, has a price target of £1,575 on Burberry stock. “It’s Finally Burberry Weather,” UBS analysts said of the London-listed firm. “Following our prolonged skepticism on BRBY’s elevation efforts not aligned with its historical positioning, we now turn positive on the name due to encouraging signs from its new strategy.” LVMH Shares of LVMH popped 12% on Wednesday after the company beat estimates on its third-quarter earnings . Its Paris-listed shares added a further 0.7% on Thursday. “Over the past two years, we stayed on the sidelines on LVMH awaiting signs of a returning positive EPS momentum, which we believe is now back,” UBS analysts said in a Thursday note, hiking their price target to 680 euros and upgrading the stock rating to Buy. Meanwhile, analysts at Citi this week gave LVMH stock a Buy rating and a target price of 630 euros, labeling the company’s third-quarter results “a ray of hope.” MC-FR YTD line LVMH share price Another upgrade came from Bernstein, which noted after the earnings release that LVMH had delivered “beats across all divisions.” Berstein analysts gave the stock an Outperform rating with a price target of 700 euros. They pointed to “sequential improvements” in local spending across geographies, and noted the “turnaround at Tiffany [is] continuing to bear fruit,” while positive trends for champagne and improvements at Sephora were also adding to bullish sentiment. Elsewhere, analysts at RBC Capital Markets hiked their price target from 550 euros to 575 euros, also giving LVMH shares an Outperform rating. “LVMH has delivered stronger than expected 3Q25 organic revenue growth … recovery shape from here is unlikely to be linear,” they said. “We remain constructive on soft luxury category recovery into 2026, and in our view LVMH offers the right risk/reward profile to play this theme.”
Source – CNBC
