Deutsche Bank takes 'leap of faith', upgrades Burberry and LVMH

(Sharecast News) - Deutsche Bank upgraded Burberry and LVMH on Thursday as it took a look at European luxury stocks, saying it was "taking the leap of faith". The banks said investor sentiment on luxury has shifted quickly as we have progressed through the third quarter.

"Once it was clear there was a sequential improvement in cFX sales growth, even if largely comparative related, the willingness to be underweight the sector evaporated," it said.

"We are still in the early days of the sector recovery in our view and any evidence of an improvement in China will see a further leg up.

"4Q cFX may show volatility given tougher comparatives, especially in the US and we would view any concern as an opportunity to invest. Fundamentally, we believe investors want to participate in the sequential sales recovery driven by a Chinese recovery in 2026."

Deutsche lifted Burberry to 'buy' from 'hold' and hiked the price target to 1,500p from 1,200p.

It said the execution of 'Burberry Forward' remains well on track and there are early signs of success with stronger than expected cFX sales growth improvement and increased management confidence.

"Investors have noticed," said DB, noting that the stock has rallied around 30% year-to-date and 90% from April lows, closely tracking FY27-FY28E consensus LFL expectations.

"Whilst the starting point is elevated we believe there is more to come," DB said. "After a brief interlude we upgrade Burberry to buy again with a 1,500p target price. Further upside from here requires cFX growth of high single digit-low double digit % and sustainable EBIT margin recovery.

"We feel more confident that the British luxury house is on track to reignite desire with the changes we have seen in the collections, online/ offline shopping experience and product/price realignment combined with the strong brand heat data. In our view this sets Burberry up to replicate the success in the heritage product to the remainder of the collection."

It also upgraded LVMH to 'buy' from 'hold' and upped the price target to €635 from €520.

Deutsche noted that LVMH is the largest Luxury company but said the investment case has derailed in the last two to three years as sales have weakened across most of its divisions.

"The advantage of scale has been challenged and the degree of price increases taken in key divisions have created a long term impact on price perception and volume," it said. "However, we view LVMH as the biggest beneficiary for a change in investor sentiment in the Luxury sector. With some of the easiest comparatives heading into 2H25 and 1H26 we expect to see the EPS trajectory improve from here."

DB said that importantly, the management team has reacted to the changes with a number of management and creative designer changes, cost efficiency exercises underway and using the strong balance sheet for share buybacks.

"With the valuation on 22x Cal 26 PE sitting below its long run average, a SOTP analysis giving significant upside and cFX sales starting to sequentially improve, we upgrade to buy."

The bank said it was upgrading both LVMH and Burberry to sit alongside its existing buy recommendations for Hermes, Pandora and Zegna.

"We are slightly more cautious on Richemont, Kering and Moncler but do not see material downside," it added.

At 0950 BST, Burberry shares were down 1.3% at 1,249p while LVMH was 0.2% lower at €574.20.