Stock of the Week: Burberry

VIDEO: Investors reacted positively to the latest trading update from the luxury fashion firm

James Gard 24 January, 2022 | 9:29AM
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James Gard: Welcome to Morningstar.

Earnings season is now in full swing and we’ve just had an update from Burberry, which is our latest stock of the week.

The luxury fashion firm has just released its latest third quarter trading figues and shares rose around 6% as investors reacted to some upbeat numbers. Full-price sales are higher than before the pandemic and full year operating profit is now forecast to be 35% higher than in the previous year. Outerwear such as the famous Burberry trenchcoat, and leather goods, have been popular categories.

Luxury stocks have been on a volatile journey since the pandemic started, which hasn’t been helped by the latest coronavirus variant and new restrictions, particularly in China. There’s been some push and pull in investor sentiment over the last two years. On the one hand, wealthy travellers, key buyers of handbags and clothes, have not flown as much, so haven’t been doing as much airport shopping. But many people have saved money since 2020 and have been keen to splash out and treat themselves. Booming housing and stock markets, and even crypto, have made some people wealthier.

So prices for some luxury stocks like LVMH have soared. Morningstar analyst Jelena Sokolova thinks that Burberry is one of the more undervalued luxury names, with its consistent message, good control over distribution and global presence. The company is also adept at using social media like Instagram and TikTok with the aim of attracting younger buyers.

On a company-specific level, Burberry has just restored its dividend and the shares yield over 3%. A new chief executive takes over in April, Jonathan Akeroyd, who comes from Gianna Versace. Burberry has a fair value estimate of £20 per share but is currently trading below nineteen pounds. Its brand strength means it is awarded a narrow economic moat.

For Morningstar, I’m James Gard.

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James Gard  is content editor for Morningstar.co.uk