Le Comité du Champagne, an organization that brings together all the world's winemakers and champagne houses, announced on Wednesday that in 2021 total champagne shipments rose 32% year over year to a total of 322 million bottles.
These estimates, albeit preliminary, show the crisis caused by the Covid-19 pandemic has not terribly dampened the demand for champagne, which has recovered well thanks to household consumption. Industry experts think household consumption of champagne has likely prevailed due to restrictions on tourism and events.
The organization added the sector is on track to achieve record sales of more than 5.5 billion euros ($6.2 billion) in 2021-22, driven by the strong recovery in exports and continued consumer loyalty to great cuvées. That will be above the pre-pandemic level of 5 billion euros.
The expected surge in champagne consumption could give retailers a strong tailwind, so investors may want focus on U.S.-listed companies that offer this luxury product.
LVMH Moet Hennessy Louis Vuitton
My preference is LVMH Moet Hennessy Louis Vuitton SE (LVMUY, Financial) for the following reason: the company offers not only champagne, wines and spirits under prestigious brands like Belvedere, Chandon and Ruinart, but also products in other luxury categories.
The French fashion house, which owns the Louis Vuitton, Fendi, Celine and Christian Dior brands, is on solid footing as champagne and other luxury products target high-income people who will always be customers regardless of whether the cycle is up or down.
Looking ahead, the Federal Reserve plans to raise interest rates at least three times this year and, if the result is a slowdown or, worst-case scenario, a standstill in the economy, the company's stock price should remain resilient even if most other stocks go down.
The company’s portfolio also includes fashion and leather products, perfumes and cosmetics, watches and jewelry and luxury yachts designed and built under the Feadship and Royal Van Lent brands. In addition, it offers luxury tourism services and several other select retail products.
First-half 2021 earnings results
The first half of 2021 was good for LVMH as it benefited from a strong return in growth momentum.
Year over year, LVMH's revenue growth was 56% and it achieved a record turnover of 28.7 billion euros, while organic revenue growth was 53%. The markets in the U.S. and Asia have recovered faster than the European markets since the beginning of last year.
Ongoing operations generated a profit of 7.63 billion euros for the first half of 2021, which was more than four times higher than in the corresponding period of 2020.
Outlook
As a result of this performance, Chairman and CEO Bernard Arnault believes LVMH Moët Hennessy Louis Vuitton is poised to continue growing while extending its leadership position in the global luxury market.
Currently, the company pays semi-annual dividends. The most recent distribution of 67.8 cents per common share was issued on Dec. 17, 2021. The stock grants a forward dividend of $1.64, yielding 1.07% as of early trading on Thursday.
Financial condition
The Altman Z-score of 4.28 indicates a stable financial situation. The interest coverage ratio of 48.31 implies the company can easily pay the interest expense on any outstanding debt. The return on invested capital of 11.01% exceeds the weighted average cost of capital of 4.9% by a wide margin, meaning the company is investing its captial effectively.
The current metric of 1.1, however, indicates the company struggles to repay short-term obligations.
Shares were around $159.08 in early trading on Thursday for a market capitalization of $398.41 billion and a 52-week range of $119.56 to $171.91.
The 50-day moving average value is $161.49 and the 200-day moving average value is $156.22, so the share price is currently not expensive.
Resilience could be a great catalyst for LVMH Moet Hennessy Louis Vuitton's stock in the coming months, while other luxury companies could slow down significantly or stop growing altogether.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $183.03 per share.
