Overview#
J.P. Morgan has downgraded Essity AB from "neutral" to "underweight," reflecting concerns over rising costs that are expected to affect the company's earnings. The bank has also reduced its price target for Essity shares from Skr245 to Skr215, citing inflation in energy and pulp costs.
Earnings Forecast Adjustments#
Analysts at J.P. Morgan have adjusted their earnings per share (EPS) estimates for Essity, lowering the 2026 forecast by 4.2% to Skr17.46 and the 2027 forecast by 5.0% to Skr18.33. They anticipate a 4% inflation rate for the cost of goods sold throughout the year, which could pressure the company's profitability.
Margin and Sales Growth Projections#
The brokerage expects Essity's adjusted earnings before interest, taxes, and amortization (EBITA) margin to decline by 100 basis points to 13.1% in fiscal year 2026, which is lower than the consensus estimate of 13.8%. They project full-year adjusted EBITA at Skr18,404 million, which is 5% below the Bloomberg consensus of Skr19,282 million. On the sales front, J.P. Morgan forecasts organic sales growth of 2.2% for FY26, surpassing the consensus estimate of 1.4%.
Valuation Changes#
J.P. Morgan has shifted its valuation approach from a sum-of-the-parts method to a discounted cash flow (DCF) model, applying a weighted average cost of capital of 10% and a long-term growth rate of 1.5%. This DCF analysis yields a firm value of Skr175.13 billion, leading to an equity value of Skr152.64 billion, or Skr215 per share. Currently, Essity shares are trading at Skr247, reflecting a 14.1% decline over the past year and a 35.3% drop compared to the MSCI Europe index.
Risks and Considerations#
Potential upside risks for Essity include stronger-than-expected demand and pricing adjustments that could mitigate the impact of rising costs, as well as a weakening U.S. dollar, which may benefit the company.