Photographer: Luke MacGregor/Bloomberg

The Bad News Keeps Flowing for H&M

Updated on

Hennes & Mauritz AB has already lost almost a fifth of its market value this year.

Now, analysts who track the Swedish retailer have seen enough to drive them to cut their price targets to the lowest level since 2006.

The average of 27 H&M analysts tracked by Bloomberg dropped to 149.2 kronor on Feb. 1, down 8 percent from Jan. 30, which was a day before H&M reported annual results. The company also used its full-year presentation to reveal that things weren’t going as well as expected in the first months of 2018.

Slumping Expectations

Average price target for H&M has dropped to the lowest level since September 2006

Source: Data compiled by Bloomberg

On Wednesday, H&M shares slumped 11 percent to their lowest level in a decade as investors showed their dissatisfaction with a turnaround plan that includes the biggest store-closure program in at least two decades and the creation of a new format to supplement its stumbling main chain.

Brokers that lowered their price targets include Credit Suisse Group AG, which went to 150 kronor from 205 kronor. Credit Suisse also downgraded its rating to neutral from outperform. Goldman Sachs Group Inc. cut its share-price estimate to 123 kronor from 140. H&M shares closed at 139.34 on Wednesday.

Morgan Stanley cut its target to a street-low of 100 kronor from 120 kronor, indicating H&M could fall 28 percent from the Jan. 31 closing price. That was the broker’s fourth consecutive cut, bringing its total price target reduction since March 2016 to 58 percent.

In a note to clients, analysts Geoff Ruddell and Amy Curry said "the proposed introduction of a scrip dividend causes us to lower our price target for the second time in less than a month.”

Slashing Target

Morgan Stanley has cut its H&M price target by 58 percent since March 2016

Source: Data compiled by Bloomberg

H&M proposed an unchanged dividend of 9.75 kronor per share and said that "in view of continued high investments in areas such as digitalization," the board "is to investigate the possibility of offering all shareholders an opportunity to reinvest the dividend received in newly-issued H&M shares."

H&M has struggled to win favor with the market since delivering its worst quarterly sales decline on record in December. Most analysts now have a negative view on the company, with buy recommendations dropping to just over 8 percent of the total. That’s the lowest level since at least 1999, according to data compiled by Bloomberg. About half the analysts are advising clients to sell, with 42 percent recommending investors to hold on to stock they already have.

No Buy

Proportion of H&M buy ratings has dropped to the lowest since at least 1999

Source: Data compiled by Bloomberg

  • Credit Suisse said that the first half looks challenging and that it expects a re-rating to happen only when results start improving
  • Deutsche Bank AG instead upgraded the retailer to hold from sell, based on limited downside to its new, lower, price target of 135 kronor
  • DNB ASA said H&M’s results caused intensified focus on the negatives and cut its price target to 150 kronor due to lower estimates and a lower target multiple. The broker said that the start to 2018 was worse than it had estimated, with 1 percent sales growth in local currencies in December–January versus its estimate of 4–5 percent growth
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