War Panic Hammers Luxury Sector — Where Are the Buying Opportunities?

Investing.com - According to a report released Monday by RBC Capital Markets, European luxury stocks have fallen an average of 16% so far this year due to fears of the Iran war, significantly underperforming the 1% decline of the MSCI Europe Index.

RBC analysts state that Hermès, Moncler, Watches of Switzerland, and EssilorLuxottica are the most oversold stocks, while Adidas, Nike, Kering, and Burberry face the greatest downside risk if the conflict intensifies.

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The broker conducted three scenario stress tests on 15 stocks. In the bear market scenario, assuming a 30% revenue decline in the Middle East lasting until 2026, the average EPS would decrease by 6%.

The super bear scenario assumes a 50% revenue reduction in the region, plus a 1% decrease in global revenues elsewhere, leading to an average EPS drop of 15%.

RBC states that all stocks are oversold relative to the bear market scenario, with Watches of Switzerland showing the most significant oversell, as the company has no exposure to the Middle East. Hermès’ EPS impact in the bear market scenario for fiscal 2026 is only -2%.

RBC comments: “Since the Iran conflict began, Hermès’ stock price has fallen 9%. Compared to our bearish EPS forecast for fiscal 2026 of -2% in the bear market scenario and -4% in the super bear scenario (both well below peers), this decline seems excessive from a profit perspective.”

Moncler, which has only three stores in the UAE accounting for 2% of revenue, would see a -4% EPS impact under the super bear scenario. Its stock has fallen 10% since February 27.

Meanwhile, Swatch Group has the highest Middle East exposure in the sector, accounting for 10% of fiscal 2025 revenue. Under the 2026 super bear scenario, its EPS would decline by 58%, reflecting weak profitability fundamentals. Kering’s super bear impact is -15%, the most severe among core luxury companies, due to sustained margin pressure during the Gucci restructuring.

LVMH’s Middle East revenue accounts for 6% of sales, and its target price has been lowered from €625 to €600.

RBC has lowered its 2026 group revenue forecast by 2% to €80.3 billion, and its EPS estimate by 3% to €22.38, which is 4-5% below market consensus.

RBC notes that the impact of the conflict remains limited to the Middle East. The report states: “Based on our observations and discussions with covered companies, the impact of the Iran war appears largely confined to the Middle East so far. In other key regions such as North America, Western Europe, and Asia-Pacific (China, Japan, Southeast Asia), consumer behavior and demand trends have not shown significant changes.”

RBC indicates that the Q1 earnings reports from LVMH on April 13, Moncler on April 14, and Adidas on April 29 will be the first tests of these assumptions.

This article was translated with the assistance of AI. For more information, see our Terms of Use.