On Thursday, JPMorgan reiterated its Underweight rating and SEK130.00 price target for Hennes & Mauritz AB (HMB:SS) (OTC: HNNMY), following the company's third-quarter financial results. The firm anticipates that the fashion retailer's shares will decline due to a combination of factors, including a significant earnings miss and increased marketing expenditures.
H&M reported a 23% miss on consensus earnings before interest and taxes (EBIT) for the third quarter. This shortfall included some one-time items, but also reflected a rise in marketing spend, which is expected to continue affecting future earnings. Despite a strong current trading performance, with an 11% increase, this did not meet the heightened investor expectations fostered by robust market data.
The company's current trading surge comes after a period of comparatively weak performance, and while it may be partly attributed to new collections, JPMorgan suggests that the positive trend could be a general market phenomenon rather than a direct result of H&M's efforts. The bank believes that even when accounting for the year-over-year increase for September, the full-year 2024 EBIT is likely to be revised downward by 3-4%.
In summary, JPMorgan's analysis points to a challenging outlook for H&M. The bank expects the combination of the third-quarter earnings miss and the necessary sustained marketing investment to lead to a downward adjustment in the company's full-year financial expectations and a subsequent decline in its share price.
In other recent news, Hennes & Mauritz AB, or H&M, has been the subject of various financial forecasts. Deutsche Bank has 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. The firm has increased its forecast for H&M's constant currency sales growth and earnings per share for fiscal year 2024.
Meanwhile, 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. JPMorgan reiterated its underweight rating on H&M, citing concerns over potential negative earnings momentum and increased markdown risks if targeted growth is not achieved.
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 earnings before interest and taxes (EBIT) for the third quarter and full year 2024, significantly lower than the consensus.
On a positive note, HSBC upgraded H&M from Hold to Buy, recognizing the company's operational improvements and a conservative stock repurchase program.
InvestingPro Insights
As H&M faces a challenging outlook according to JPMorgan, real-time data and insights from InvestingPro can offer a more nuanced perspective on the company's financial health and stock performance. With a market capitalization of $27.89 billion, H&M is trading at a P/E ratio of 25.63, suggesting a valuation that is high relative to current earnings. The PEG ratio of 0.12, however, indicates a potentially more attractive valuation in terms of near-term earnings growth. Additionally, the company's Price / Book ratio stands at 7.08, which can be considered high, potentially reflecting market expectations of future growth or a premium for the company's assets.
InvestingPro Tips highlight that analysts have recently revised their earnings expectations downwards for the upcoming period, which may be a cause for concern for potential investors. Furthermore, H&M's stock is suggested to be in overbought territory according to the RSI, indicating that the stock price may be due for a pullback. Nonetheless, the company is recognized as a prominent player in the Specialty Retail industry and has been profitable over the last twelve months. For investors seeking more detailed analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/HNNMY, providing deeper insights into H&M's financials and stock performance.
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