Bernstein took the plunge this morning by dropping its Neutral rating to Outperform, targeting EUR 2,493 (currently EUR 2,206). "Hermès is an insurance policy in our portfolio, as well as being an attractive long-term position," explains analyst Luca Solca. He believes that the stock offers guarantees in relation to the rest of the sector, in the face of three risks:

  • If Chinese consumer confidence does not recover.
  • If Western consumer demand moderation accelerates.
  • If geopolitical issues do not improve after the US presidential election.

I won't summarize the whole note here, but to sum up, here are two relevant charts and a reminder of what Hermès is all about.

Chart 1: Hermès has both a structural advantage and a brand dynamic. In this chart produced by Bernstein, in which the research firm provides scores linked to ROIC (return on capital invested), we can see that the French saddler is well ahead of all other players on the different time steps:


Chart 2: The value of Hermès second-hand products has continued to grow in 2023, while many other luxury brands have seen their resale value decline. The chart shows the average resale price in 2023 for a Hermès handbag compared to the base price.


What's Hermès all about? 

Bernstein points out that the group dominates the high-end of the leather goods market, with its iconic products (Birkin and Kelly) that "score highest in terms of consumer desirability and occupy the highest price point". But Hermès also sells at lower prices, which "successfully contradicts the principle of category segregation (like Mercedes and Porsche) to reach a wider consumer audience".

The group also draws its strength from :

  • Upstream integration
  • Uncompromising quality standards
  • Commitment to repairing products and extending their service life

For Bernstein, Hermès' valuation is "logical", because :

  • Hermès is the company that has increased its ROIC the most over the last ten years
  • Hermès has the lowest earnings surprises, the lowest beta and a narrow dispersion of forecasts (consistent, predictable performance).

Hermès joins Bernstein's list of preferred stocks in the sector, alongside Compagnie Financière Richemont and LVMH.