LVMH Analysts Say Buy Shares on Cheap in Run-Up to Record Earnings Report

While Louis Vuitton bags never go on sale, investors may still have a chance to snap up LVMH Moet Hennessy Louis Vuitton SA’s shares at a discount before the company reports earnings tomorrow.

The owner of Moet champagne and Tag Heuer watches may say 2010 net income rose 48 percent to a record 2.61 billion euros ($3.6 billion), according to analysts surveyed by Bloomberg. Investors can benefit by buying the stock, which lost 7.4 percent in January amid a sell-off of luxury shares, according to Leopold Authie, an analyst at Exane BNP Paribas.

LVMH’s valuation “is very attractive,” said Marc Willaume, an analyst at Raymond James in Paris. He lists LVMH as his top pick and recommends buying it. “So far it is difficult to see a black hole in their portfolio.”

LVMH may say sales last year advanced 18 percent to 20.1 billion euros as wealthy clients bought more Givenchy handbags and retailers replenished inventories of Hublot timepieces, the survey shows. Cie. Financiere Richemont SA, Bulgari SpA, Burberry Group Plc and Tod’s SpA all reported sales increases of at least 16 percent in the last three months of 2010 as the industry rebounded from the worst year on record and Asian shoppers lifted spending.

The Paris-based company trades at 26 times earnings, while Burberry trades at 46 times and Gucci owner PPR SA at 35. Hermes International SCA, the Kelly bag maker in which LVMH unveiled a stake last year, trades at 44 times earnings.

Analyst Ratings

Twenty-six of the analysts covering LVMH say investors should buy the stock while one suggests selling. The stock has fallen 6.6 percent in Paris trading this year, exceeding the Bloomberg European Fashion Index’s 5.7 percent slide, after surging 57 percent in 2010. The index, which also includes Hermes and Richemont, advanced 60 percent last year.

While January’s dip by European luxury stocks has brought valuations back to “fair and sustainable” levels, the decline in LVMH’s share price creates an “interesting” buying opportunity, according to Davide Vimercati, an analyst at UniCredit in Milan.

“LVMH will continue to deliver consistent above-average top-line earnings and growth in the near and medium term, thanks to its balanced geographical exposure and diversified business portfolio,” he wrote Jan. 28. He recommends buying the shares.

‘Bee My Love’

Watches and jewelry may have been the best-performing unit in 2010. Sales at the division, which includes Chaumet “Bee My Love” tiaras, probably rose 26 percent, while operating profit may have almost doubled to 125 million euros, according to Emmanuel Bruley Des Varannes, a Societe Generale analyst.

Sales growth at the unit will likely slow in 2011, climbing 10 percent after last year’s rebound, estimates Antoine Belge, an analyst at HSBC. The division’s operating margin may widen 2.1 percentage points, despite increases in gold prices and the value of the Swiss Franc against the euro, more than LVMH’s other businesses, according to Belge.

“Price increases will play an important role for Swiss watchmakers and we expect that all the watch companies will increase prices in euros and U.S. dollars in the course of 2011,” Claudia Lenz, an analyst at Vontobel, wrote in a report last month.

LVMH’s watch and jewelry operating profit may rise 35 percent this year, compared with 23 percent in champagne and wine, the next best performer, Bruley Des Varannes estimates.

Craftsmen Shortage

Sales of fashion and leather goods may have risen 21 percent in 2010, Exane BNP’s Authie estimates. The unit, which accounts for about 40 percent of total revenue, may post growth of 10 percent this year, according to Thomas Chauvet, an analyst at Citigroup in London.

The only limit to growth may be a shortage of trained craftsmen at Vuitton, which the company hopes to partly redress by the end of the second quarter after opening a new factory in France in March, according to Belge.

Price increases and new products such as the Monogram Empreinte leather accessories line, which Vuitton introduced in the fourth quarter, may help drive sales. The collection, which features tote bags for $2,720, will lift average selling prices and help margins widen to 34 percent in 2011 from 33.5 percent in 2010, Authie estimates.

The Vuitton brand has a value of 17.9 times estimated earnings, “which looks good value versus peers on 19.2 times and Hermes on 33.5 times consensus,” Chauvet wrote Jan. 28.

LVMH may say wines and spirits sales climbed 19 percent in 2010, while selective retailing rose 18 percent, according to Raymond James’s Willaume. Revenue at the units may rise 9 percent and 7 percent, respectively, in 2011, Chauvet estimates.

“Although the comparison base will be tough, LVMH’s general prospects continue to be favorable,” Oddo Securities analyst Francois-Regis Breuil wrote in a note.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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