Morgan Stanley adjusts its forecasts for Hermès: A slowdown expected?

Investing.com - Hermes International SCA (EPA:HRMS) stock rebounded to around €1,900 after dropping more than 12% last week due to ongoing concerns about a slowdown in demand in China, following disappointing economic indicators.

Against this backdrop, Morgan Stanley (NYSE:MS) revised its forecast for Hermès, lowering the third quarter 2024 sales growth to +10.9% from a previous +16%, and reducing the 2024 EBIT margin forecast to 40.1% from 40.9%.

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These adjustments follow similar revisions for LVMH (EPA:EPA:LVMH), Richemont (LON:0QMU) (SIX:CFR), and Moncler (BIT:MONC). Despite this, Morgan Stanley maintains a positive outlook for Hermès, believing the company will continue to outperform in the luxury sector, with a price target set at €2,300.

Morgan Stanley's optimistic forecasts are notably based on Hermès' ability to maintain a strong pricing policy and increase its market share due to the brand's desirability. Additionally, there remains growth potential in China, where consumer spending is still below other markets.

However, risks remain, including a possible decrease in demand due to the contraction of multiples in the luxury sector in China and pressure on middle-class consumers.