J.P. Morgan Downgrades Essity AB on Rising Costs and Weak Earnings Outlook

J.P. Morgan has downgraded Swedish hygiene company Essity AB to “underweight” from “neutral,” citing mounting cost pressures that are expected to impact profitability over the coming years. The investment bank also reduced its price target to SEK 215 from SEK 245, reflecting concerns over accelerating energy and pulp cost inflation.

According to analysts, these rising input costs will weigh heavily on Essity’s earnings performance throughout 2026 and into 2027. The firm has revised its adjusted earnings per share (EPS) forecasts downward, cutting 2026 estimates by 4.2% to SEK 17.46 and 2027 projections by 5% to SEK 18.33. Cost of goods sold (COGS) inflation is expected to reach around 4% for the full year, putting additional pressure on margins.

While Essity has hedged approximately 58% of its energy exposure for the year, analysts warn that cost increases will likely begin in the second quarter and peak in the second half. As a result, J.P. Morgan expects the company’s adjusted EBITA margin to decline by 100 basis points to 13.1% in fiscal year 2026, falling short of the market consensus of 13.8%. Full-year EBITA is forecast at SEK 18.4 billion, below Bloomberg’s consensus estimate.

On the revenue side, Essity is projected to achieve organic sales growth of 2.2% in 2026, slightly ahead of expectations, driven by modest pricing gains and volume growth. However, first-quarter performance may remain flat, with pricing declines offsetting volume increases. EPS for Q1 is estimated at SEK 4.02, below consensus forecasts.

From a valuation perspective, J.P. Morgan has shifted to a discounted cash flow (DCF) model, applying a 10% weighted average cost of capital and 1.5% long-term growth rate. Despite potential upside risks such as improved demand or favorable currency movements, the overall outlook remains cautious as inflationary pressures continue to challenge Essity’s financial performance.