Hermes Earnings: Strong Growth Across Regions Ahead of Most Peers; Shares Still Expensive

We increase our fair value estimate for wide-moat Hermes by 28% to EUR 1,270 per share as the company reported strong revenue growth and profitability improvement in the first half of 2023. Although we increase our assumptions for full-year profitability slightly, the bulk of our fair value increase comes from our reduced assumptions for the firm's cost of capital. We now assume a 7.5% cost of equity based on below-average systematic risk, 1.5 percentage points below the rate of return investors expect of a diversified equity portfolio. We believe this better reflects Hermes’ low sensitivity to economic cycles, low operating leverage, and low financial leverage. Our fair value implies a multiple of 35 times 2023 estimated earnings, still well below the market multiple of 50 times earnings.