HSBC downgrades LVMH stock rating on soft luxury challenges

HSBC has lowered its rating on LVMH stock to "Hold" from "Buy" and reduced its price target to EUR490.00 from EUR600.00. The downgrade is due to near-term challenges facing LVMH's soft luxury segment, which accounts for a significant portion of the company's sales and earnings. LVMH's Fashion and Leather division, which makes up 47% of group sales and 72% of EBIT, is experiencing slower than expected performance.

HSBC acknowledges the division's potential for mid-to-long term growth but is taking a cautious approach due to the current economic conditions. Despite these challenges, LVMH's other divisions, such as Wines and Spirits, Watches and Jewellery, and Selective Distribution, are showing strong performance with a combined contribution of 24% to group EBIT.

HSBC believes that the stock may be undervalued at its current price, trading near its 52-week low. The investment firm maintains confidence in LVMH's overall business model, driven by its premium brand positioning and impressive gross profit margins of 66%.