Going into Earnings, is Hermes Stock a Buy, Sell or Hold?

Whilst
analysts
believe
sales
growth
for
Hermes
will
have
slowed
down
in
the
fourth
quarter
of
2023,
it
is
still
expected
to
remain
in
the
double
digits.
The
final
figure
will
depend
on
the
ability
of
the
company
to
satisfy
demand
with
additional
production
capacity,
and
on
Chinese
consumers
returning
to
its
stores.

Key
Morningstar
Metrics
for
Hermes
Shares

Fair
Value
Estimate:
€1,270
Current
Price:
€2,032
Morningstar
Rating:
★
Morningstar
Economic
Moat
Rating:
Wide
Morningstar
Uncertainty
Rating:
Medium

What
to
Expect
from
Hermes
Earnings

According
to
Factset
consensus
data,
Hermes
revenue
is
expected
to
reach
€3.28
billion
in
the
last
quarter
of
2023
(up
12.8%
on
a
like-for-like
basis),
which
would
lift
full-year
2023
sales
to
€13.35
billion,
compared
to
€11.60
billion
in
2022.

“Hermes
should
have
experienced
some
store
traffic
normalisation
in
Asia
Pacific
in
4Q23,
where
Hermes
laps
much
tougher
comparatives
than
its
peers
(especially
in
China),”
analysts
at
Stifel
wrote
in
a
recent
report.
While
the
company
will
have
tough
comps
to
beat
in
France
and
Americas,
Stifel
still
expect
Hermes
to
have
substantially
outperformed
the
sector.

Operating
income
should
reach
€5.51
billion
(17.3%
higher
than
the
2022
result)
with
net
income
at
€4.05
billion,
or
€38.66
a
share.

Analysts
at
JPMorgan
expect
group
EBIT
to
go
up
17%
year-over-year
to
€5.50
billion,
“implying
H2
EBIT
up
7%
with
margin
down
60
basis
points
year-over-year
to
38.5%
(41.2%
on
the
FY)”.

Hermes
Stock:
Should
I
Buy,
Sell
or
Hold?

Hermes
shares
are
among
the
most
expensive
in
the
industry,
trading
at
a
price
to
earnings
multiple
of
48x,
compared
to
a
median
P/E
ratio
of
21x
for
the
luxury
industry
and
13x
for
the
European
market.

After
its
share
price
strongly
outperformed
the
rest
of
the
market
last
year
(+33%),
investors
will
need
to
feel
more
comfortable
with
the
management’s
comments
on
its
sales
and
earnings
outlook
this
year
to
continue
bidding
up
its
share
price.

One
driver
of
continued
outperformance
could
come
from
Hermes’
ability
to
broaden
its
product
offering
without
damaging
the
goodwill
of
its
brand.

So
far,
“the
brand’s
product
lines
have
been
much
more
coherent
with
the
overall
brand
identity,”
analysts
from
Morgan
Stanley
wrote
in
a
report
published
on
February
7.
“We
think
Hermes
has
a
major
long-term
potential
to
extend
its
product
range
and
exposure
to
a
number
of
verticals,”
like
make-up
and
skincare,
they
add.

Another
outperformance
driver
could
be
the
range
of
price
increases
the
luxury
company
might
announce.
While
not
the
most
important
driver
of
sales
growth,
price
increases
have
usually
been
used
to
compensate
for
the
negative
impact
of
currency
volatility
in
certain
geographies,
notably
Asia-Pacific
and
the
US,
which
accounted
for
75%
of
total
revenue
in
the
first
nine
months
of
2023.

Morningstar’s
fair
value
of
€1,270
per
share,
which
implies
a
9%
annual
revenue
growth
over
the
next
10
years
(from
2022),
thanks
to
“stronger-than-peer
pricing
power”
and
the
continuing
rising
demand
of
high-net
worth
individuals.
The
rise
of
the
middle
class
in
China
will
also
fuel
future
growth,
according
to
Morningstar’s
equity
analyst
Jelena
Sokolova.

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