H&M

H&M’s Q3 earnings exceeded both our and consensus expectations, and it’s clear the company is taking steps in the right direction. While the improvement in profitability was strong this quarter, sales growth remains modest, something we view as critical for a more sustainable margin recovery. As such, we would prefer to see a consistent trend of improvement before concluding that a lasting margin rebound is underway. Additionally, we believe the valuation has reached elevated levels. Given ongoing concerns about topline growth and uncertainty around the durability of the profitability gains, we still view the risk/reward as unattractive. As a result, we reiterate our Sell recommendation but increase our target price to SEK 140 per share (was SEK 130), mainly due to increased estimates.

We have made slight downward revisions to our short- and medium-term forecasts for H&M, in light of a slower recovery than our expectations. While we recognize that external factors on the gross margin have moved in a positive direction, we believe that the short-term drivers remain weak, with topline concerns and an uncertain operating environment. Since our last update following the Q2 report, the share price has risen by around 15%, resulting in elevated absolute valuation multiples (2025e P/E: ~24x) and leaving limited room for disappointment. Consequently, we turn to a Sell recommendation (prev. Reduce) but reiterate our target price of SEK 130 per share.

H&M’s Q2 results were operationally largely in line with our expectations, and we made only minor upward revisions to our short-term estimates. The company’s performance and outlook suggest that a meaningful recovery will take time to materialize. In our view, short-term drivers remain weak, including low consumer confidence and a slow margin recovery. As a result, we believe that the stock is already sufficiently priced in for high earnings growth (2025e P/E: 20x). Therefore, we reiterate our Reduce recommendation and target price of SEK 130 per share.

H&M will report its Q2’25 (March-May) results on Thursday, June 26th, at 8:00 am CET. While H&M is progressing through its turnaround, we believe there will be limited visibility of this in Q2, due to modest sales growth and continued headwinds to gross margins. In our view, the valuation multiples are still on the high side, and we therefore see little upside on a 12-month horizon. As a result, we reiterate our Reduce recommendation and target price of SEK 130 per share.