On Thursday, Bernstein analysts increased the stock price target for Henkel AG (OTC:HENKY) & Co KGaA (HEN:GR) (OTC: HENKY) to EUR 84.00, up from the previous target of EUR 72.00, while keeping a Market Perform rating on the stock.
The revision reflects a more optimistic view of the company's earnings potential in the second half of the year, despite acknowledging Henkel's position as the slowest long-term grower among the firms covered by Bernstein.
Bruno Monteyne, an analyst at Bernstein SocGen Group, cited that although Henkel faces challenging market exposures and has a history of weak execution with limited signs of improvement expected through the end of 2024, there is a belief that the market's margin expectations for the latter half of the year might be overly conservative. This perspective suggests that being bearish on the stock ahead of its earnings report in March could be ill-advised.
According to InvestingPro, Henkel maintains a strong financial health score and has consistently paid dividends for 30 consecutive years, demonstrating remarkable stability despite market challenges.
The new price target is based on an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 7.4 times, which is a decrease from the previous multiple of 7.8 times.
This adjustment comes alongside an increased forward next twelve months plus one (NTM+1) EBITDA estimate of EUR 4,372 by the analysts. Current InvestingPro data shows the stock trading at an EV/EBITDA of 8.86x, with a P/E ratio of 17.58x, suggesting room for potential valuation adjustment.
Monteyne elaborated on the reasoning behind maintaining the Market Perform rating, pointing to Henkel's anticipated annualizing of SKU rationalization into 2025. Despite the messages about these efforts, the analyst remains cautious about the company's ability to significantly improve its performance in the near term.
The revised price target and maintained rating reflect a nuanced view of Henkel's stock, balancing conservative estimates for the second half of the year with the broader challenges the company might face in achieving long-term growth. The market will likely watch closely how Henkel's financial performance unfolds in the upcoming earnings report.
In other recent news, Henkel reported a robust Q3 growth, with a solid organic sales growth of 3.3%. The company's Adhesive Technologies and Consumer Brands divisions reported organic sales growth of 3.7% and 2.7% respectively.
Despite facing regional market challenges, Henkel remains optimistic about sustaining growth and advancing its strategic priorities, which include ambitious sustainability targets aiming for net-zero emissions by 2045.
In the company's recent developments, Henkel launched a new detox shampoo under the Joico brand, contributing to strong sales growth. The company also reiterated its full-year sales and earnings guidance, expecting an organic sales growth of 2.5% to 4.5% and an adjusted EBIT margin of 13.5% to 14.5%.
Henkel anticipates finishing the year within the upper half of its guidance ranges for adjusted EBIT margin and EPS growth, expected to be between 20% and 30% at constant currencies. The company projects improved pricing and volumes in Q4 relative to Q3.
Despite some regional market variations and increased direct material costs, the company maintains a positive outlook, as it continues to focus on its strategic priorities and long-term growth prospects.
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