Exane BNP Paribas (OTC:BNPQY) has upgraded shares of luxury goods company Hermes International (OTC:HESAF) from Neutral to Outperform, maintaining a price target of €2,340.00.
The firm highlighted that Hermes shares are currently trading around 20% below their peak value of €2,410.5, which was achieved in March 2024.
The stock's present valuation stands at approximately 41 times the 1-year forward price-to-earnings ratio, about 15% higher than its pre-Covid average of 35 times. This premium is seen as justified due to Hermes's increased free cash flow generation, which is supported by an EBIT margin of around 40%, compared to 35% before the pandemic.
The analyst at Exane BNP Paribas pointed out that the price target of €2,340.00 implies an approximate 20% upside potential for the stock. The upgrade to Outperform reflects a change in perspective regarding the stock’s valuation, which previously was a point of contention. According to the firm, Hermes's valuation has become attractive once more.
Despite potential economic downturns, Hermes is expected to show resilience relative to its peers. This expectation is based on the company's historical performance and the fact that about 40% of its sales have high visibility.
In other recent news, Hermes International reported a strong financial performance for the first half of 2024. The luxury goods company saw a significant 15% increase in turnover at constant exchange rates, totaling €7.5 billion.
Growth was experienced across all regions and product sectors, with leather goods and saddlery leading the expansion. Despite a challenging macroeconomic environment, Hermes's recurring operating income rose by 7% to €3.1 billion.
Meanwhile, Kepler Cheuvreux has maintained a Buy rating on Hermes shares but lowered the price target from EUR 2,350 to EUR 2,300. The firm observed a deceleration in top-line growth for the second half of the year, with a forecasted decline of four percentage points compared to the first half. Additionally, the company is expected to face margin challenges, with an anticipated drop in EBIT margin by 150 basis points.
InvestingPro Insights
Providing a closer look at Hermes International through the lens of InvestingPro, we can further understand the financial health and market position of the company. Notably, Hermes International holds more cash than debt on its balance sheet and has impressively raised its dividend for 3 consecutive years. In addition, the company boasts a robust gross profit margin, which has contributed to its ability to maintain dividend payments for an impressive 31 consecutive years.
From a valuation standpoint, Hermes's market capitalization stands at a substantial $224.45 billion, with a high price-to-earnings (P/E) ratio of 45.14. This elevated P/E ratio, relative to near-term earnings growth, aligns with the premium valuation noted by Exane BNP Paribas. Furthermore, the company's revenue has grown by nearly 11% over the last twelve months as of Q2 2024, underscoring its capacity to expand despite broader economic uncertainties.
For investors seeking additional insights, there are more InvestingPro Tips available, which delve into the company's liquidity, profitability, and valuation multiples. These tips provide a comprehensive view of Hermes International's financial landscape and can be accessed through the InvestingPro platform.
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