Morgan Stanley, a well-known financial institution that has stayed on the sidelines for years, has finally joined the growing number of investors who are pushing Hermes International shares to new record highs. On Wednesday, the brokerage firm upgraded Hermes to overweight, giving it a positive rating for the first time since initiating coverage in 2018.
One of the main reasons for Hermes’ success is its focus on catering to the wealthiest clients, which has helped it weather the storm in the broader luxury sector. The luxury industry has been facing challenges such as reduced demand from Chinese shoppers and slower growth in other important markets. However, Hermes has managed to outperform its peers with its stock gaining more than 5% this year and an impressive gain of about a third in 2023.
Morgan Stanley analyst Edouard Aubin expressed optimism in his note, stating that while most luxury brands are expected to face subdued demand and limited pricing power over the next 18 months, Hermes stands out. Aubin believes that consensus expectations for the coming years are too low, and he foresees a promising future for the luxury brand. As a result, he has set a price target of €2,380, which is now the highest on Wall Street and suggests an 18% increase from Tuesday’s closing price. This positive outlook contradicts the average analyst target, which predicts a 2% decrease in Hermes’ shares over the next 12 months.
Aubin highlights two driving factors that will contribute to Hermes’ continued success. Firstly, Chinese consumers are increasingly moving up the luxury ladder by cutting back on more affordable brands in order to invest in a single luxury piece that signals their social status. This trend is expected to significantly benefit Hermes. Secondly, affluent shoppers are less affected by economic headwinds compared to the middle class, giving them more spending power. Aubin believes that this will further strengthen Hermes’ performance in the market.
Morgan Stanley’s positive rating for the luxury sector is relatively rare, with its only other buy rating being for Prada SpA. This further highlights Morgan Stanley’s confidence in Hermes’ growth potential and success.
Hermes is expected to release its annual results on Friday, which will provide more insights into the brand’s performance and prospects. With Morgan Stanley’s support and an optimistic outlook, Hermes is well-positioned for continued success and could solidify its position as a leader in the luxury goods market.
Sources:
– [Morgan Stanley](https://www.morganstanley.com/)
– [Hermes International](https://www.hermes.com/)
