JPMorgan Downgrades H&M's Stock Outlook Amid Earnings Miss
JPMorgan's Cautious Stance on H&M
Recently, JPMorgan has repeated its Underweight rating on Hennes & Mauritz AB (HMB:SS) shares, maintaining a target price of SEK130.00. This decision comes in light of the company's disappointing third-quarter financial results. The firm believes various factors will cause the fashion retailer's stock to decline, notably a stark earnings miss and escalated marketing expenditures.
Earnings Report Overview
H&M's latest report revealed a 23% shortfall on consensus earnings before interest and taxes (EBIT) for the third quarter. This discrepancy included some isolated factors but simultaneously highlighted rising marketing costs impacting future earnings. Despite seeing an 11% increase in current trading performance, this did not align with the heightened expectations set by strong market data.
Market Response and Analysis
The surge in trading performance can be partially credited to new collections, but JPMorgan views this positively as a broader market trend rather than a direct result of H&M’s specific initiatives. Adjustments to the forecasts suggest that even considering the year-over-year growth for September, the full-year EBIT for 2024 could face a downward revision of 3-4%.
Challenges Ahead for H&M
Summarizing JPMorgan's findings, challenges loom large for H&M moving forward. The combination of the disappointing third-quarter earnings and the enduring need for substantial marketing investments foreshadows a potential downward shift in the company’s financial expectations and an accompanying decline in its stock price.
Other Analyst Viewpoints
In recent developments, various analysts have provided updates on H&M's outlook. Deutsche Bank has stepped up its forecast, raising its target price to SEK200 based on strong trading performance noted in September and an upbeat assessment for the approaching quarter. Similarly, Jefferies has adjusted its rating on H&M's stock to Hold, while lowering the target price to SEK155.00, primarily due to anticipated rises in marketing expenses and store expansions.
Further Analyst Perspectives
Citi has kept a Sell rating on H&M's stock, projecting modest +1% constant currency sales growth for the third quarter of 2024, which doesn't align with consensus. Their predictions for H&M's EBIT for both the third quarter and full-year 2024 remain significantly lower than expected.
Positive Developments Amid Uncertainty
On a brighter note, HSBC has shifted H&M from Hold to Buy, acknowledging operational improvements and a prudent stock buyback strategy. This indicates that there are opportunities on the horizon if executed effectively.
Insights from InvestingPro
While JPMorgan paints a cautious outlook for H&M, insights from InvestingPro can shed additional light on the company's financial situation and overall stock performance. With a market capitalization hovering around $27.89 billion, H&M's shares are trading at a P/E ratio of 25.63, suggesting a valuation that may seem high considering current earnings levels. However, a PEG ratio of 0.12 might imply a more favorable valuation concerning anticipated earnings growth.
Stock Performance Considerations
Furthermore, H&M's Price/Book ratio at 7.08 indicates a premium for the company’s assets or optimistic market expectations regarding future growth prospects. Recent trends show a downward revision of earnings expectations among analysts, which could raise concerns for potential investors. Moreover, a current assessment suggests that H&M's stock is in overbought territory, as indicated by the Relative Strength Index (RSI), possibly signaling a needed adjustment in stock price.
Final Thoughts
Despite these challenges, H&M remains a significant entity within the Specialty Retail sector and has shown profitability over the past year. For those seeking a deeper dive into H&M’s financial status, further insights are available, offering valuable perspectives on this prominent retailer's performance in the market.
Frequently Asked Questions
What was JPMorgan's rating on H&M's stock?
JPMorgan maintained an Underweight rating on H&M's shares.
What was H&M's earnings miss in the last report?
H&M reported a 23% miss on consensus earnings before interest and taxes (EBIT).
How did other banks view H&M's stock?
Analysts from Deutsche Bank upgraded their outlook, while Citi maintained a Sell rating.
What factors contributed to H&M’s stock performance?
Increased marketing costs and competition in the market are key factors affecting performance.
Is H&M a profitable company?
Yes, H&M has remained profitable over the last twelve months despite some challenges.
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