Jefferies downgrades Hermès to “hold” on FX impact, slower growth

Investing.com -- Hermès International (OTC:HESAY) was downgraded to “hold” from “buy” by Jefferies, which cited trimmed growth expectations, mounting foreign exchange headwinds, and rising reliance on the leather goods division as key reasons behind the move, in a note dated Monday. 

The rating change comes with a reaffirmed price target of €2,460, implying a 1% downside from the prior day’s close of €2,474.

Jefferies cut its 2026 revenue estimate for Hermès by 7% to €17.4 billion, compared to a previous forecast of €18.7 billion. 

Earnings per share for the year are now expected at €49.17, down 10% from €54.39. These new figures stand 3.6% and 3% below consensus, respectively. 

Forecasts for 2025 were also lowered, with revenue revised to €16.08 billion from €16.89 billion and EPS cut to €42.93 from €45.11.

Jefferies attributed the downgrade primarily to adverse FX effects and a lack of acceleration in non-leather categories. 

Organic revenue growth for Q2 is estimated at 8.3%, trailing the consensus estimate of 8.8%. 

Leather goods remained the key driver, rising 12% in Q2, while other segments, ready-to-wear, silk, beauty, watches, and accessories, grew around 5%. 

The brokerage noted investors’ growing concern over the group’s increasing dependence on leather for overall growth.

Geographically, the Americas delivered 12% growth in Q2, followed by Japan at 14%, EMEA at 9.7%, and Asia-Pacific at 4%. 

The analysts pointed out that despite pricing gains in the U.S. and easing product availability, these factors have not translated into a broad-based growth reacceleration.

Jefferies also flagged margin pressure in 2025. Gross margin is forecast to decline 130 basis points in the first half, driven by cost inflation and FX shifts that outpaced price hikes. Full-year gross margin is projected at 69.5%, down from 70.3% in 2024. 

EBIT margin is expected to dip to 40.2% from 40.5%. Despite stable cost control, earnings growth will remain constrained, with EBIT forecast at €6.97 billion in 2026, 4.9% below consensus.

The brokerage maintained its valuation multiple of 50x 2026 earnings, aligned with the recent trading average. 

Jefferies ruled out a return to peak multiples near 60x, stating that would require a clear rebound in non-leather growth and improved visibility on demand from Chinese consumers.

Hermès currently trades at a 240% premium to the Stoxx 600, a level Jefferies deemed fair under current conditions.

The stock also trades at a 6% premium to ultra-luxury peers like Ferrari (BIT:RACE) and Richemont (SIX:CFR), reflecting its higher margins but narrowing relative advantage.