Deutsche Bank updated its outlook on Hennes & Mauritz AB (ST:HMb) (HMB:SS) (OTC: HNNMY), raising the price target to SEK200 from SEK180, while reiterating a Buy rating on the stock. The revision reflects the company's strong current trading in September and an optimistic view on the upcoming quarter's performance.
The bank's analysis indicates that the market is looking past the potential for a weaker third quarter, focusing instead on a robust September. The initial upgrade to a Buy rating in July was based on expectations that investor sentiment would favor a recovery in constant currency (cFX) sales growth over concerns about margin expansion.
Deutsche Bank's analyst noted the encouraging start to the autumn/winter season, suggesting there might be an upside risk for better gross margin performance in the fourth quarter. This improvement could help balance out the increased marketing investments H&M is undertaking.
The firm's confidence in the cFX sales growth is deemed a crucial factor that could mitigate any possible third-quarter EBIT shortfall.
Deutsche Bank has increased its September cFX sales growth forecast to 12% from 8% and adjusted its fourth quarter cFX sales growth prediction to 6.5% from 5.5%. These adjustments lead to an approximate 2% increase in the forecasted earnings per share (EPS) for the fiscal year 2024.
The new price target of SEK200 is based on an anticipated 20.5 times the calendar year 2025 P/E ratio, correlating with an estimated 13% EPS growth.
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