On Thursday, UBS revised its price target for Hermes International (OTC:HESAF) (RMS:FP) (OTC: HESAY (OTC:HESAY)), decreasing it to €2,626 from €2,750, while still recommending a "Buy" for the stock. This adjustment comes ahead of the company's first-half results, which are scheduled to be released on July 25 at 7am UK time.
The luxury goods company is anticipated to exhibit a solid second-quarter organic sales growth (OSG) of 13%, a deceleration from the 17% growth seen in the first quarter. This slowdown is attributed to weaker sector trends in China and a more challenging comparison basis.
UBS has also slightly reduced its earnings per share (EPS) forecasts for Hermes by 2% for the fiscal years 2024 to 2026. The new estimates take into account the expected lower second-quarter OSG of 13%, down from the previously projected 14%.
The adjustment reflects Hermes's vulnerability to the downturn in the Other APAC (Asia-Pacific) region, which has resulted in a less favorable regional mix. Consequently, UBS now projects a lower EBIT (earnings before interest and taxes) margin for the first half of the year, at 42.3% compared to the prior estimate of 43.3%.
Despite these modifications, the firm's outlook for Hermes remains positive, with the expectation that the upcoming half-year results will confirm the resilience of the business model amidst a slower APAC region.
Investors and market watchers will be looking forward to the July 25 announcement to see how Hermes's performance aligns with these projections and to understand the impact of regional trends on its financial outcomes.
In other recent news, financial firm Citi has updated its outlook on Hermes International, raising the stock target to EUR2,350 from EUR1,824, while maintaining a neutral stance. This adjustment is based on a review of Hermes' full-year 2023 performance and insights from a recent U.S. roadshow.
Citi anticipates that Hermes will see double-digit growth in both revenue and earnings, largely due to an 8-9% increase in pricing, which is higher than its peers' low single-digit percentage rises.
This growth is expected to be supported by volume expansion in non-leather categories such as ready-to-wear, watches, and jewelry, which comprise roughly 40% of sales. However, the production capacity for leather goods is predicted to stay limited to around a 7% annual increase.
Citi has also revised its sales, EBIT, and EPS forecasts for Hermes for fiscal years 2024 and 2025 upwards by 5%, 5%, and 7% respectively. These revisions are based on the company's recent financial results and the expectation of a strong start to 2024, with first-quarter earnings projected to increase by 13% on a constant currency basis.
The new stock price target of EUR2,350 reflects Citi's earnings upgrade and discounted cash flow (DCF) update. Despite the positive growth outlook, Citi's neutral stance suggests a cautious approach to the stock's current valuation. These are among the recent developments concerning Hermes International.
InvestingPro Insights
In light of the upcoming first-half results for Hermes International, insights from InvestingPro provide additional context for investors considering the company's financial health and stock performance. With a substantial market capitalization of $245.32 billion and a robust gross profit margin of 72.29% in the last twelve months as of Q1 2023, Hermes's financials reflect a strong position in the luxury goods market.
Notably, the company's impressive gross profit margins and ability to maintain dividend payments for 31 consecutive years, as highlighted by InvestingPro Tips, underscore its financial stability and commitment to shareholder returns.
The data also reveals that Hermes is trading at a high earnings multiple, with a P/E ratio of 53.2, suggesting that investors may expect continued growth and profitability. Moreover, the company's cash flows can sufficiently cover interest payments, providing further assurance of its financial management.
For those interested in diving deeper into Hermes's stock performance and financial metrics, InvestingPro offers more tips and insights. By using the coupon code PRONEWS24, investors can access these valuable resources with an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
As the market anticipates the release of Hermes's results on July 25, these InvestingPro metrics and tips offer a comprehensive view of the company's financial standing, which could be vital for making informed investment decisions.
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