My first look at LVMH and Pernod Ricard; It's almost always best to ignore the ever-present gloom-and-doomers; Pictures from the peak of New Zealand's Trig K
1) I'm back with a first look at two more stocks that just popped up on my radar...
In Tuesday's e-mail, I discussed my visit to three wineries in New Zealand's main wine-producing region. And as I also said:
There are more than a dozen publicly traded winemakers – most notably diversified spirits giants like Constellation Brands (STZ), Diageo (DEO), Brown-Forman (BF-B), and Paris-based companies LVMH (MC.PA) and Pernod Ricard (RI.PA). These are all high-quality businesses with strong global brands, so this is also an opportunity to take a look at their stocks.
Yesterday, I took a first look at Constellation, Diageo, and Brown-Forman to see if any of the three are worth a deeper dive (as I said, Constellation and Brown-Forman looked interesting enough to take a deeper look, but not Diageo).
So today, I'll finish up with a first look at LVMH and Pernod Ricard...
The other four companies on my list are wine and spirits companies, but LVMH (its full name is LVMH Moët Hennessy – Louis Vuitton, Société Européenne) is a much larger and more diversified global luxury-goods company.
Its wines and spirits brands include Dom Pérignon, Moët & Chandon, and Hennessy. But the company is best known for its fashion and leather products brands such as Louis Vuitton, Fendi, Celine, Christian Dior, Givenchy, and Marc Jacobs.
LVMH also sells watches and jewelry under the Tiffany & Co., TAG Heuer, Bulgari, and Hublot brands.
Lastly, it makes perfumes, cosmetics, and luxury yachts... and operates daily newspapers, a luxury tourism service, and even a leisure and theme park.
As you can see from this 20-year chart, LVMH's stock has been an exceptional performer, but has lost more than a third of its value in the past eight months (I love stock charts like this, as they often signify a great business encountering temporary difficulties):
Not surprisingly, LVMH's revenue and operating income have grown massively as well, with a little hiccup this year, which no doubt explains the stock's drop:
Lastly, valuation...
As of yesterday's close, LVMH has a $303 billion market cap and $33 billion of net debt, giving it a $336 billion enterprise value ("EV"). The stock is trading at 3.7 times revenue, 11.6 times earnings before interest, taxes, depreciation, and amortization ("EBITDA"), and 19.6 times this year's estimated earnings per share.
Overall, LVMH looks moderately interesting at first glance. It has mouth-watering economic characteristics and fabulous brands... but it's very large, its valuation is full, and I would need to understand why growth has turned negative this year.
If you'd like to see a deeper dive, let me know what you think – as always, you can send me an e-mail by clicking here.
2) Moving on, Pernod Ricard is another Paris-based company that produces and sells wines and spirits worldwide under many well-known brands – such as Absolut, Ballantine's, Beefeater, Blenders Pride, Chivas Regal, Imperial, Jameson, Kahlúa, and, of course, Pernod and Ricard.
Like Diageo, Brown-Forman, and LVMH, Pernod Ricard's stock has performed very well over the long term until getting cut in half in the past 18 months:
Given how well the stock did from 2009 through 2021, rising more than 400%, I was surprised to see that Pernod Ricard's revenue and operating income were actually flat during this period, meaning that multiple expansion drove this entire gain – which isn't a good sign...
Turning to valuation, as of yesterday's close, Pernod Ricard has a $29 billion market cap and $13 billion of net debt, giving it a $42 billion EV. The stock is trading at 3.4 times revenue, 11.2 times EBITDA, and 14.6 times next year's estimated earnings per share.
Like LVMH, Pernod Ricard has attractive economic characteristics and strong brands. It also pays a healthy 4.3% dividend, which is easily covered by its free cash flow.
But I wouldn't be interested in paying 15 times earnings for a company that has shown almost no growth for the past 16 years and whose revenue and profits actually declined last year... so Pernod Ricard's stock is a pass for me.
3) I've told my readers dozens of times that it's almost always best to ignore the ever-present gloom-and-doomers who confidently predict that the market is about to crash...
So I loved the chart below that I've recently seen making the rounds again (it was posted by Yale's Steven Kelly last year on the social platform X).
It shows how much investors would have lost from 2010 to late 2020 had they sold the S&P 500 Index and switched into bonds, following the advice of 11 different prognosticators (the numbers would of course be even worse through today, given that the S&P is up 67% since the end date on the chart):
4) It was a cloudy and then rainy day on the northern tip of New Zealand's South Island yesterday... but that didn't stop my wife Susan and me from doing a steep, slippery hike up 1,400 feet to the scenic peak of Trig K. Here are some pictures:
Best regards,
Whitney