On Friday, UBS adjusted its price target for Hennes & Mauritz AB (HMB:SS) (OTC: HNNMY), commonly known as H&M, decreasing it slightly to SEK191 from SEK195 while retaining a Buy rating on the stock.
The firm highlighted positive trends in the brand's recovery, despite a lower-than-expected Q3 earnings before interest and taxes (EBIT) due to foreign exchange impacts and the exit from the portfolio brand Afound.
The UBS analyst noted the H&M brand's improving sales trajectory, particularly its outperformance compared to other brands in the portfolio. This trend was seen as a key indicator of the group's potential.
The fourth quarter showed an 11% growth, marking the strongest since the COVID-19 pandemic, reinforcing the analyst's confidence. Consequently, the forecast for Q4 2024 and the full year 2025 constant currency growth was raised to 6%, the best quarterly performance since 2019.
The analysis by UBS suggested that H&M's focus on investments in value, stores, online presence, and marketing is paying off, as these initiatives are not hindered by the deferral of the 10% margin target. The underlying margin movements for Q3, excluding foreign exchange and Afound factors, indicated that H&M successfully balanced an additional cSEK400 million in marketing expenses through effective cost control.
The analyst expressed optimism that a continued recovery in sales could lead H&M to achieve the 10% margin sooner than anticipated by the consensus model. H&M stands out as the only store-based retailer in UBS's coverage with a margin below 10%. The report concluded that if H&M were to reach a 10% margin, its shares would be attractively valued at approximately 16 times earnings, compared to the pre-COVID average of 20 times.
In other recent news, Hennes & Mauritz AB (H&M) has seen significant attention from analysts. JPMorgan maintained an underweight rating on H&M, citing a 23% miss on consensus earnings before interest and taxes (EBIT) for the third quarter, and predicted a downward revision of full-year 2024 EBIT by 3-4%. Deutsche Bank, on the other hand, upgraded its outlook on H&M, raising the price target to SEK200 due to strong trading in September and an optimistic view on the upcoming quarter's performance.
Jefferies maintained a Hold rating on H&M's shares but lowered the price target to SEK155.00 due to potential increases in marketing costs and the addition of new stores. Citi maintained a Sell rating on H&M, forecasting a modest +1% constant currency sales growth for the third quarter of 2024, which is below the consensus expectation. The bank also projected H&M's EBIT for the third quarter and full year 2024, significantly lower than the consensus.
HSBC upgraded H&M from Hold to Buy, recognizing the company's operational improvements and a conservative stock repurchase program. These are some of the recent developments that are shaping the financial outlook of H&M.
InvestingPro Insights
As H&M continues to navigate its post-pandemic recovery, real-time data from InvestingPro provides valuable insights into the company's financial health and market performance. H&M's market capitalization stands at $27.69 billion, reflecting its substantial size in the Specialty Retail industry, where it is recognized as a prominent player. With a P/E ratio of 25.36 and an adjusted P/E ratio for the last twelve months as of Q3 2024 at 28.14, H&M is trading at a low P/E ratio relative to its near-term earnings growth. This suggests that the stock may be undervalued given its growth prospects, aligning with UBS's assessment of the stock's attractiveness.
InvestingPro Tips further emphasize H&M's potential, noting that the company is profitable over the last twelve months and analysts predict it will remain profitable this year. Additionally, three analysts have revised their earnings upwards for the upcoming period, providing a positive outlook for investors. With a dividend yield of 3.63% and a significant dividend growth of 48.61% in the last twelve months as of Q3 2024, H&M demonstrates its commitment to returning value to shareholders.
For those interested in a deeper dive into H&M's performance and future potential, InvestingPro offers additional tips, which can be accessed on the platform. With these insights, investors can make more informed decisions about the opportunities H&M presents in the evolving retail landscape.
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