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On Tuesday, Barclays (LON:BARC) analyst Matthew Clements downgraded Hennes & Mauritz AB (HMB:SS) (OTC: HNNMY), commonly known as H&M, from Overweight to Equalweight and reduced the price target from SEK 185 to SEK 145. The adjustment was made after updating forecasts to account for the fourth quarter of 2024 outcomes, first-quarter 2025 expectations, and a comprehensive model update following a recent change of coverage.
Clements indicated that the earnings per share (EPS) forecasts for the fiscal year 2025 have decreased by 15%, and for the fiscal year 2026 by 18%. The new projections sit 6% and 7% below the latest Infront consensus, which was published on January 24 before the fourth-quarter results were announced. The company maintains a P/E ratio of 19.72 and is expected to report its next earnings on March 27, 2025. According to InvestingPro’s Fair Value analysis, the stock appears slightly undervalued at current levels. The valuation, influenced by a discounted cash flow (DCF) and a 17 times fiscal year 2026 earnings per share (EPS) multiple, has been lowered to align more closely with the current market valuation.
H&M’s strategic initiatives, particularly within the essential womenswear segment, were acknowledged as sensible by Barclays. The initiatives include reducing lead times, enhancing quality while maintaining prices, and improving both online and offline customer experiences, alongside long-term marketing investments. However, Barclays expressed reservations regarding the effectiveness of these strategies in significantly accelerating sales growth or improving the brand’s heat metrics, as per the Brand Buzz Barometer published on February 25.
The downgrade reflects a growing concern about H&M’s ability to drive profitable sales growth, despite the company’s efforts to revamp its key business segments and invest in marketing. With the price target now set at SEK 145, Barclays’ stance on H&M is now more conservative, mirroring the broader market’s current valuation of the company.
In other recent news, Hennes & Mauritz AB, commonly known as H&M, has seen varied analyst opinions regarding its financial outlook. CFRA has maintained a Buy rating with a SEK180 price target, highlighting H&M’s strategic focus on operational efficiency and margin prioritization. Despite reporting a second-quarter normalized EPS of SEK3.11, which was below consensus estimates, H&M’s revenue increased to SEK59.6 billion year-over-year. However, CFRA noted that sales in June are expected to decline by 6% due to strong comparisons from the previous year and challenging weather conditions.
On the other hand, RBC Capital downgraded H&M from Outperform to Sector Perform, adjusting the price target to SEK165. This downgrade reflects concerns over the timeline for sales recovery, despite positive localized impacts from H&M’s brand revamp efforts in key cities. JPMorgan also maintained an Underweight rating with a SEK130 target, anticipating a challenging first quarter of 2025 with a predicted 19% year-over-year decline in EBIT. This cautious outlook is partly due to a forecasted drop in gross margin and concerns about customer re-engagement with the brand.
H&M has been working on enhancing its digital presence, with improvements in its website and mobile app aimed at boosting consumer engagement. However, RBC Capital suggests that the competitive landscape may prolong the retailer’s sales recovery. Investors are closely watching these developments as H&M continues to navigate a competitive retail environment.
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