H&M

We believe consumer demand has remained subdued in H&M’s Q4 (Sep-Nov), although supply chain efficiencies and external margin tailwinds should support profitability. We have lowered our earnings estimates for 2025 and beyond, but margins remain broadly intact, reflecting our confidence that H&M will continue to demonstrate strong cost control. We continue to see the share as expensive at current valuations and maintain a Sell recommendation.

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.