Hermès shares outperformed the Paris market on Wednesday, benefiting from a recommendation upgrade by Morgan Stanley, which has just switched to buy on the stock.

Shares in the French luxury house, now the third-largest capitalization on the Paris Bourse, are currently up 0.6%, while the CAC 40 is down 0.1%.

In a note released in the morning, Morgan Stanley raised its recommendation from 'weighted in line' to 'overweight' and raised its target price from 2,000.00 to 2,380 euros, representing a potential upside of 17% compared to Tuesday's close.

While the analyst said he expects lackluster demand and limited price control within the luxury sector for at least the next 18 months, he believes Hermès should be the exception to the rule.

In his view, the earnings estimates set by the market for the next few years are far too low.

"We believe Hermès has the potential to expand its product offering over the long term while improving its vertical positioning," explains Morgan Stanley.

By way of example, Hermès has just launched into make-up and beauty products, a market which we estimate already represents some four billion euros for Chanel.

According to Morgan Stanley, these characteristics make the stock a 'core' investment within the sector.

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