On Thursday, CFRA analyst Danny Yeo Sze Wai downgraded shares of Essity AB (ESSITYB:SS) (OTC: ESSYY) from Buy to Hold and reduced the price target from SEK360.00 to SEK300.00. The revision reflects a new valuation based on a 2025 price-to-earnings (P/E) ratio of 14.5 times, which is lower than the five-year historical average of 16.5 times. The downgrade comes in the wake of Essity’s recent financial performance and market outlook.
Essity’s net sales for the year 2024 were reported at SEK145.55 billion, falling slightly short of the S&P Capital IQ consensus estimate of SEK146.1 billion. Despite a modest organic growth of 0.2% for the year, the fourth quarter showed a healthier organic growth of 3.9%. This growth was driven by a combination of volume, which increased by 1.7%, and price/mix improvements, contributing 2.2%.
The company’s adjusted EBITA margin for 2024 stood at 14.0%, which was seen as a positive sign. However, the fourth quarter margin dipped to 13.1%, failing to meet expectations. The lower margin was attributed to rising costs of goods, particularly within the Consumer Goods segment. This segment saw its adjusted EBITA margin decline by 2 percentage points to 11.0% in the final quarter of the year.
In light of these financial results, CFRA has also adjusted its earnings per share (EPS) estimates for Essity. The firm now forecasts a 2025 EPS of SEK20.70, a decrease from the previously estimated SEK21.23. Additionally, CFRA has initiated a 2026 EPS forecast of SEK22.56.
Despite the downgrade, CFRA believes that Essity remains on track for profitable growth in 2025. However, the firm suggests that the most readily achievable benefits have already been realized, leading to the decision to lower the stock’s rating. This change in rating indicates a more cautious outlook on the stock’s near-term potential.
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