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RBC Capital Markets has downgraded Hermès to Sector Perform from Outperform and lowered its price target to €1,700 from €1,900, citing expectations that the luxury group’s growth advantage over industry peers will narrow in the coming years.
The brokerage expects Hermès’ revenue and EBIT compound annual growth rate premium over competitors to fall to roughly 2 percentage points from 2027 onward, compared with an estimated 8-point advantage in 2025. RBC analysts said the growth premium that previously supported Hermès’ higher valuation relative to the luxury sector is gradually converging.
A key concern is the company’s increasing dependence on its Leather Goods division. RBC estimates the segment will account for about 63% of Hermès’ group revenue growth between fiscal 2025 and 2030, up significantly from 40% during the previous five years. Historically, stronger Leather Goods performance relative to other divisions has coincided with weaker cyclical luxury demand, potentially giving rivals greater upside during a broader sector recovery.
RBC also expects price increases in Leather Goods to moderate. While the division has benefited from roughly 6% annual volume growth and post-pandemic price contributions of 6% to 9%, pricing growth could slow to 3% to 4% from fiscal 2027. Without stronger volumes, Leather Goods revenue growth is forecast at approximately 9% to 10% annually.
Meanwhile, Hermès’ EBIT margin is expected to remain near 40% through fiscal 2029. Although that remains among the strongest margins in the luxury industry, RBC sees limited room for further expansion and forecasts slightly negative incremental return on invested capital from fiscal 2026 to 2029.
With Hermès shares trading at around 32 times fiscal 2027 earnings, RBC believes the current valuation leaves the stock’s risk-reward profile more balanced. The brokerage instead highlighted LVMH and Burberry for valuation support and Richemont for stronger earnings growth.
RBC also reduced its fiscal 2027-2028 Hermès revenue forecasts by 1% and EPS estimates by 3% to 4%, partly due to higher projected tax rates.
