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Investing.com — Hermes shares are edging up, rebounding from intraday lows after Morgan Stanley (NYSE:) highlighted the luxury goods company’s significant global price increase for 2025, signaling robust pricing power.
Morgan Stanley reported that Hermes has raised its global prices by an estimated 6.5% for 2025, a move that underscores the company’s ability to command higher prices compared to the industry average increase of around 2%. The price adjustments vary by region, with a 4.5% increase in Europe, 7% in the US, and 10% in both China and South Korea for leather goods.
The research firm anticipates that the price hike will not deter consumer demand due to Hermes’ strong brand desirability and disciplined pricing strategy since the pandemic began.
According to Morgan Stanley, Hermes has been more conservative with price increases than its peers, who have raised prices by over 50% cumulatively since January 2020, compared to Hermes’ approximately 28%.
This disciplined approach, combined with the brand’s ongoing appeal, suggests that the Visible Alpha consensus estimate of 10.3% sales growth at constant FX in 2025 may be conservative. Morgan Stanley’s own forecast stands at 12.8% growth.
Edouard Aubin, a Morgan Stanley analyst, commented on the brand’s pricing strategy, stating, “We expect limited push-back in terms of volumes, given very high pricing power, even though Hermès’ prices are substantially above the industry average.”
The financial institution has also raised its fourth-quarter 2024 top-line Organic Sales Growth (OSG) forecast for Hermes from 11.6% to 12.6%, surpassing the Visible Alpha consensus of 10.5%. This revision is based on recent channel checks that suggest the brand’s momentum remains strong, with a potential acceleration in key markets like Greater China.
Consequently, Morgan Stanley anticipates less operating deleverage and projects a second-half 2024 EBIT margin of 39%, leading to a full-year margin of 40.5%, which is higher than both their prior estimate and the consensus.
In light of these factors, Morgan Stanley has increased its price target for Hermes to €2,600, rolling forward its Discounted Cash Flow (DCF) analysis and implying a 10% potential upside to the shares. The firm maintains an Overweight rating on Hermes.
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