Editing LVMH Moët Hennessy - Louis Vuitton, Société Européenne

A simple 50% base case, 25% bull case, and bear case are used because of the uncertainty of the decision of the FOMC on the terminal interest rate. The new reported number on the CPI has back down to 3% whereas the previous number is 4%. If the FOMC does not decrease the interest rate in around September or November, the market will likely be looking at deflation instead. Although the non-Farm payroll has a strong number and a low unemployment rate, the participation rate is much lower than the average, which indicates that the unemployment is not accurately reflected. According to the backtesting research, whenever the FOMC decreases the interest rate, the transition from hawkish to dovish sentiment, resulting in a short squeeze of the stock market and then a big fall, the target is likely to be reached in the next few months when the interest rate is not likely to be increased. Also, for the growth rate, the function of (Estimated revenue in the last year which is 2027 divided by Actual revenue in 2018 which is the first)^(1/10) - 1 is used. The risk-free rate takes the US 10-year treasury bond yield rate. The Beta value takes the 5 Year monthly, which has a value of 1.03 which suggests that LVMH moves with more momentum than the S&P 500 stocks. This beta suggests that it’s not a very risky investment as it doesn’t deviate a lot from the market beta of 1. Although theoretically it does increase a portfolios risk by 3% and may increase the expected return.

The bull case and bear case are calculated with the earnings in EV/EBITDA and Net Debt/EBITDA, and the Free Cash Flow Equity Yield based on their free cash flow, both earning price target and the FCFE price target are weighted 50% each. Throughout the calculation, we obtained the WACC of 13.33% and the CAPM is 14.08%, and the difference between ROIC% and WACC% is 5%. Furthermore, the CapEx has decreased by 10% every year since 2018, indicating that the company is investing its money in future growth. Due to the uncertainty of the predicted value of the CPI, we believed that the actual upside of the share price would be higher, because of the effect of lowering the interest rate for the first time in the third bull phase according to Dow's theory and the transition from hawkish sentiment to dovish sentiment.

For the relative valuation, firstly, its Piotroski F-Score (discrete score between zero and nine used to determine the strength of a firm's financial position) where LVMH has scored a 9. Altman Z-Score (measures the likelihood of a publicly traded company going bankrupt - a value close to 0 suggests a company might be going bankrupt and a value close to 3 suggests a company is in a solid financial position) where LVMH has scored a value of 4.59. The Beneish M-Score indicates that LVMH is not a manipulator on their financial reports. Secondly, The PE ratio is currently at 30.5, which is just above the median of its history of 24.71, the minimum value of 11.39, and the maximum value of 78.7. Although the PE ratio is ranked worse than 74.97% across the whole retail-cylindrical industry, LVMH has a huge increase in Revenue, EPS, and operating cash flow, indicating that LVMH remains undervalued if this trend continues. This prediction could be seen by looking at the PEG value, which has a value of 1.5. The median value in its history is 2.28, which is way lower than the maximum value of 5.65 in its history. Thirdly, the EV-to-EBITDA is currently at 16.89, which has a similar value to the medium of 12.85. Although it has a higher value than 10, it is significantly lower than its competitors in the industry, where Hermes International SA, St Dupont SA, and Maison Clio Blue SA have the EV-to-EBITDA of 35.02, 124.72, 395.23, this indicating that LVMH is undervalued compared to the industry. The PS ratio is currently at 5.42, it is near to the medium for the past 10 years of 3.05, and has a similar number comparing to the industry, which is 4.5. This indicating that the LVMH stock is slightly undervalued comparing to its industry.