RBC Capital Markets has downgraded Hermes from Outperform to Sector Perform and lowered its price objective to 1,700 from 1,900, citing a reduction in the growth premium that has historically justified Hermes trading at a premium to the wider luxury sector.
The brokerage e2 80 99s updated forecasts show a marked narrowing of Hermes e2 80 99 advantage versus peers. RBC now expects a 2-percentage-point differential in revenue and EBIT compound annual growth rate (CAGR) relative to peers from 2027 onward, down from an 8-point gap that it saw for 2025. "The growth premium that justified its valuation premium vs the sector is converging," the analysts led by Piral Dadhania wrote, highlighting Hermes e2 80 99 increasing dependence on its Leather Goods division.
RBC projects that Leather Goods will account for 63% of group revenue growth between fiscal 2025 and 2030, up from 40% in the prior five-year span. That shift toward a single category amplifies the firm e2 80 99s exposure to dynamics within Leather Goods at a time when overall growth appears to be moderating.
The analysts note a historical pattern in which Leather Goods has tended to outperform the rest of Hermes e2 80 99 portfolio during periods of softer cyclical demand. This suggests that should the sector recover, other luxury names could see a larger benefit as Leather Goods outperformance may be less pronounced.
RBC also anticipates a slowdown in price-driven growth within Leather Goods. The bank says Hermes e2 80 99 expansion in the category relied on a steady annual 6% contribution from volumes, while price helped drive 6-9% per year in the post-Covid inflationary window. RBC now expects the price component to moderate to 3-4% from fiscal 2027, referencing management commentary that 2027 price increases will be "slightly lower than [this year]."
Absent a rebound in volumes, RBC e2 80 99s base case assumes Leather Goods revenue growth of roughly 9-10% from fiscal 2027 onward. The brokerage describes that outlook as broadly in line with consensus but notes it implies a sequential deceleration versus recent momentum.
On profitability, RBC forecasts Hermes e2 80 99 EBIT margin will remain largely flat at around 40% through fiscal 2029. While that level is still sector-leading in absolute terms, the analysts argue it offers limited scope for further expansion from an already elevated post-Covid base. The firm expects incremental return on invested capital (ROIC) to be slightly negative over fiscal 2026-2029, a result they contrast with the broader luxury sector where margin recovery is expected to support ROIC improvement.
RBC notes that Hermes is currently valued at around 32 times fiscal 2027 earnings, a multiple that the brokerage says already embeds much of the company's current dynamics and reduces upside. That valuation backdrop makes the risk/reward profile "more balanced" at present, the analysts wrote, and leads them to favor other luxury stocks that either have valuation support, naming LVMH and Burberry, or exhibit stronger earnings growth, naming Richemont.
As a result of these adjustments, RBC trimmed its fiscal 2027-2028 revenue forecasts by about 1% and reduced EPS estimates by 3-4%, driven in part by an assumption of a higher tax rate in the outer years.
Market context: The revision affects investor assessment of Hermes e2 80 99 future growth trajectory, its concentration risk around Leather Goods, and expectations for margin and capital returns versus the broader luxury peer set.