On Friday, HSBC analyst Paul Rossington upgraded Hennes & Mauritz AB (ST:HMb) (HMB:SS) (OTC: HNNMY) stock, commonly known as H&M, from Hold to Buy, setting a price target of SEK200.00.
Rossington's valuation is based on a calendar year 2025 earnings multiple of 18.7 times, which is below H&M's five-year historical average one-year forward price-to-earnings ratio of approximately 21 times.
The upgrade reflects HSBC's recognition of H&M's operational improvements, which are believed to be contributing to sustainably higher gross and EBIT margins. According to the analyst, the recent disproportionate drop in H&M's share price, compared to a modest 2-4% reduction in the forecasted profit before tax for the fiscal year 2024 by HSBC and consensus, presents an appealing opportunity for investors.
The positive stance on H&M is further bolstered by the company's dividend yield of 4.4%, a conservative stock repurchase program, and a net cash position on the balance sheet. These factors, combined with the anticipated progress, have led to the upgraded outlook.
Investors and market watchers can look forward to H&M's third-quarter update, which is expected to serve as the next potential catalyst for the stock. The update is scheduled for release on September 26, 2024.
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