Hermes intl: Bank of America sees Hermès exceed 300 billion euros in market capitalization

(BFM Bourse) – The American bank confirmed on Monday its buying opinion on the saddler with a target raised to 3,000 euros, which gives a potential of around 35% to the stock.

Hermès once again made a splash in the results season. The saddler gained 4.8% on Friday following the publication of its annual accounts, driven by growth well above expectations in the fourth quarter (17.5% on a comparable basis versus 14% expected by consensus).

This progression also allowed it to overtake L’Oréal on Friday, stealing from the cosmetics group the title of second largest market capitalization on the Paris market, behind LVMH.

After this good publication, the stock market potential of the saddler can (as often) raise questions. Its stock trades for 46 times expected profits in 2024, compared to 23.8 times for LVMH and 14.8 times for Kering.

In any case, on the Bank of America side, the answer is clear: yes, Hermès can still climb. The American bank confirmed its purchase advice and above all raised its price target to 3,000 euros compared to 2,300 euros previously.

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The price of growth

Bank of America’s new target gives a potential of around 35% to the stock, which also rose 1.2% at the start of the afternoon to 2,201.5 euros. All things in addition, achieving Bank of America’s objective would bring the market capitalization of Hermès to 315 billion euros, compared to 232.3 billion euros at present.

Yes, Hermès shares are not cheap, but Bank of America judges that this is the price to pay to buy a stock that benefits from an improved growth profile and return on investment. The company outperformed the stock market by 500% over 10 years (an increase of 672% compared to 173% for the Stoxx Europe 600) and nine years out of ten, notes the American establishment.

“Hermès remains one of our best picks in the luxury goods sector, along with LVMH: both showed in the fourth quarter their ability to withstand the ongoing normalization of demand, which we believe will only continue continue in the first half of this year,” explains the bank.

Bank of America anticipates like-for-like sales growth of 16% from Hermès in 2024, quite simply the best expected growth among the luxury stocks in its coverage. This forecast also turns out to be well above the 11% consensus increase.

Momentum for leather goods

Still according to Bank of America projections, Hermès’ strong growth should allow the group to stabilize its margin in 2024 at 42.1%. This is “a rarity in the sector, given that we expect a decline in profitability for almost all of the other companies we cover due to slowing growth”, argues the establishment.

Bank of America is not the only financial intermediary to have renewed its confidence in Hermès stock. UBS also confirmed its purchase opinion with a more modest target, raised to 2,508 euros compared to 2,155 euros previously. The Swiss bank expects the saddler to post growth of 14% in 2024, compared to 6% for the entire luxury sector.

“We have argued for some time that Hermès’ business model benefits from an increased level of product innovation, which provides additional momentum to its leather goods division (…), and provides a springboard for higher growth in the long term,” explains the Swiss establishment.

Julien Marion – ©2024 BFM Bourse

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