UBS has outlined its preferred holdings in the European luxury goods sector as companies prepare to report first-quarter results, singling out Richemont and Burberry as its highest-conviction Buy picks and keeping LVMH in a Buy stance as well. The investment bank points to a pronounced fall in sector valuations, which it says has left luxury stocks trading materially below long-run norms relative to the wider market.
Valuation backdrop and demand signal
The firm highlights a sizeable de-rating in luxury equities, noting that valuations are now about 15 percentage points lower than the long-term average when compared with the broader market. UBS attributes this compression in part to heightened geopolitical uncertainty that has increased investor anxiety, particularly among those who were expecting a pronounced recovery in luxury spending this year.
Despite the nervousness among investors, UBS reports it has not observed evidence of a downturn in demand so far, with Asia in particular not showing signs of slowing. On that basis, the bank’s modelling points to average organic sales growth of 4 percent for the first quarter, a forecast it says broadly aligns with consensus estimates.
Quarter-on-quarter dynamics and the impact of conflict
UBS frames the 4 percent organic growth projection as a modest sequential deceleration from the 5 percent organic expansion recorded in the fourth quarter of 2025. The bank assesses that conflict in the Middle East is likely to be responsible for roughly a 1 percentage point headwind to sales in the period, which is a key factor in the slight slowdown it expects.
IB picks and conviction
- Richemont (CFR) - UBS retains a Buy rating with high conviction into first-quarter results, anticipating that stronger-than-expected sales and earnings could illuminate Richemont’s distinct equity story at what UBS views as more attractive valuations.
- Burberry (BRBY) - The British luxury house also earns a Buy rating with high conviction. UBS expects that favorable sales and earnings outcomes would reinforce Burberry’s idiosyncratic case amid the sector’s recent valuation reset.
- LVMH (MC) - UBS remains constructive on LVMH and keeps a Buy rating, positioning it alongside Richemont among top choices. The bank cautions, however, that investor patience could be limited if growth fails to surprise to the upside in the near term.
Relative valuation and market implications
UBS points out that, excluding one company, the luxury sector is trading at an approximately 45 percent premium to the MSCI Europe index. That premium sits below both the five-year average of 70 percent and the 15-year average of 60 percent. Given this backdrop of depressed sentiment and lower relative valuations, UBS argues that even modest outperformance in first-quarter results could be disproportionately rewarded by the market.
What investors should watch
As firms report, key items for market participants will include how actual organic sales and earnings compare with the roughly 4 percent growth UBS expects, whether Asia continues to show resilient demand, and how materially the Middle East conflict continues to affect sales. UBS’s thesis rests on the view that the underlying demand picture has not deteriorated, and that valuation levels make upside surprises potentially impactful for share prices.
This article presents UBS’s views and expectations for the European luxury sector ahead of first-quarter earnings and summarizes the firm’s highest-conviction names.