CFRA has upgraded luxury goods company Hermes International (OTC:HESAF) (RMS: FP) (OTC: HESAY (OTC:HESAY)) from a Hold to a Buy rating, also increasing its price target from EUR 2,210.00 to EUR 2,250.00.
The firm's decision comes after Hermes reported its first-half earnings per share (EPS) of EUR 22.58, which, despite being EUR 0.45 below consensus estimates, still reflected robust revenue growth across all regions.
The upgrade was influenced by Hermes' consistent performance, with revenues reaching EUR 7.5 billion, exceeding estimates by EUR 61 million -- an increase from the previous year's EUR 6.7 billion. Europe led with a 15.6% revenue increase, followed by the Americas at 12.1%, and Asia at 7.1%, although Asia's growth was notably affected by foreign exchange rates.
CFRA's new price target is based on a 50X multiple of the firm's 2025 EPS estimate of EUR 45.00, aligning with Hermes' three-year average forward price-to-earnings (P/E) multiple of 49.4 times. The analyst firm has maintained its 2024 and 2025 EPS estimates for Hermes at EUR 42.50 and EUR 45.00, respectively.
Despite a challenging macroeconomic environment, Hermes posted a first-half operating margin of 42.0%, a 200 basis point decline from the previous year, primarily due to the negative impact of currency hedging. CFRA's positive outlook is further reinforced by Hermes' management execution, industry-leading margins, and a recent 15% correction in the company's share prices.
InvestingPro Insights
Following CFRA's optimistic re-rating of Hermes International, InvestingPro data mirrors a similar sentiment, highlighting the company's strong financial health and market performance. Hermes International boasts a substantial market capitalization of 237.7 billion USD, signifying its considerable presence in the luxury goods market. With a P/E ratio of 49.2, the company trades at a premium, which is justified by its impressive gross profit margin of 72.29% over the last twelve months as of Q1 2023. This margin showcases Hermes' ability to maintain high profitability relative to its revenue, a key factor in CFRA's positive reassessment.
InvestingPro Tips further illuminate Hermes' financial resilience, as the company not only holds more cash than debt on its balance sheet but has also raised its dividend for 3 consecutive years, a testament to its commitment to shareholder returns. Additionally, Hermes has maintained dividend payments for an impressive 31 consecutive years, underscoring its financial stability and reliable income stream for investors.
For readers looking to delve deeper into Hermes’ financials and stock performance, there are 16 additional InvestingPro Tips available at InvestingPro. These insights could provide valuable context and assist in making informed investment decisions. To access these insights, readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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