H&M stock faces potential pressure, says JPMorgan, citing concerns over earnings momentum

On Wednesday, JPMorgan reiterated its underweight rating on Hennes & Mauritz AB (HMB:SS) (OTC: HNNMY) with a price target of SEK130.00. The firm's stance remains unchanged due to several persistent concerns regarding the retailer's performance. The analyst pointed out that while sales growth is anticipated in July and August, it is compared to weaker past performance, and there is no clear sign of the consumer re-engaging with the H&M brand.

The analyst also highlighted the risk of increased markdowns if the company's targeted growth acceleration in the second half of the year does not materialize. This could be exacerbated by higher marketing expenses that may impact margins if the expected growth is not achieved. Additionally, the firm's earnings forecast for H&M is 9% below the Bloomberg 28-day consensus for fiscal year 2024, including a 16% lower expectation for the third quarter.

JPMorgan's cautious outlook is based on the potential for negative earnings momentum, which could lead to a decline in the stock's value in the near term. This assessment comes ahead of H&M's third-quarter results for fiscal year 2024.

The analyst's comments indicate a continued negative catalyst watch for H&M, suggesting that the firm sees several factors that could potentially lead to underperformance in the company's stock. These concerns include sales growth based on soft comparatives, potential demand disappointment leading to higher markdowns, and a significant deviation from consensus earnings estimates for the upcoming fiscal quarter.

In other recent news, Hennes & Mauritz AB, commonly known as H&M, has been the focus of various analyst perspectives. Citi maintained a Sell rating on H&M, forecasting a modest +1% constant currency sales growth for the third quarter of 2024, below the consensus expectation. The bank also projected H&M's earnings before interest and taxes (EBIT) for the third quarter and full year 2024, significantly lower than the consensus.

Meanwhile, HSBC upgraded H&M from Hold to Buy, recognizing the company's operational improvements. The analyst noted a disproportionate drop in H&M's share price compared to a modest reduction in the forecasted profit before tax for the fiscal year 2024, presenting an appealing opportunity for investors.

Deutsche Bank raised the shares target on H&M, ahead of the company's second-quarter results, maintaining a Sell rating. The bank anticipates the upcoming financial report will solidify market expectations around the company's previously issued guidance of a 10% EBIT margin.

UBS upgraded H&M from Neutral to Buy, reflecting a more optimistic outlook on the company's profitability as it begins to show signs of a sales recovery. The firm revised its EBIT estimates for H&M upward over the next two years, indicating early signs of improvement.

InvestingPro Insights

As Hennes & Mauritz AB (H&M) faces scrutiny from analysts, real-time data from InvestingPro offers a broader perspective on the company's financial health. The specialty retailer, recognized for its presence in the industry, is currently trading at a P/E ratio of 24.25, suggesting investors are paying a higher price for earnings relative to the company's near-term growth, as indicated by a PEG ratio of just 0.11. This low PEG ratio could be a sign that the company's earnings growth may outpace its P/E ratio, which may be of interest to value-oriented investors.

InvestingPro data also shows that H&M has a high Price / Book multiple of 6.52, which may imply that the market has high expectations for the company's asset value or profitability. However, with a moderate level of debt and a gross profit margin of 53.16% over the last twelve months, the company appears to be managing its finances prudently. Furthermore, analysts predict H&M will be profitable this year, and the firm has indeed been profitable over the last twelve months, which could provide some reassurance to investors concerned about the company's earnings potential.

For those interested in dividend income, H&M offers a dividend yield of 3.8%, with a significant dividend growth of 48.61% in the last twelve months. This may appeal to investors looking for both income and potential capital appreciation. For more detailed analysis and additional InvestingPro Tips on H&M, investors can visit InvestingPro, where 6 more tips are available to help inform investment decisions.

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