UBS downgraded Essity from buy to sell on Tuesday, citing weaker-than-expected growth prospects, renewed raw material inflation and execution risks tied to a potential divestment of the Consumer Tissue unit.
The bank cut its price target to 235 Swedish crowns from 280 crowns, implying a 14% downside from Essity’s closing price of 274.90 crowns on Monday. UBS also expects the stock to trade at a 35% discount to the European Consumer Staples ex-Tobacco sector, compared with a current 15% discount, reflecting a long-term earnings multiple of 11.0x for 2027.
Analysts forecast Essity’s organic sales growth at 2.6% in 2027, below the consensus estimate of 3.2% and the company’s medium-term target of above 3%. Only three business segments—Inco Retail, Fem Care and Med Solutions—representing 27% of sales, are expected to grow in line with Essity’s ambitions.
Raw material inflation is set to re-emerge as a headwind starting in the third quarter of 2026, according to UBS. The bank’s proprietary tracker projects an 11-percentage-point drag on second-half EBITA growth, while Essity’s gross margins remain in the bottom quartile among peers.
UBS forecasts second-half EBITA margins to decline 230 basis points, exceeding consensus expectations for a 160-basis-point drop. For 2027, the bank projects margins to rise just 30 basis points, versus a consensus estimate of 60 basis points, assuming commodity prices stabilize. UBS is 2% below consensus on 2026 EBITA and 4% below on earnings per share, with estimates for 2027 also 5% below consensus.
Divestment risks in the Consumer Tissue unit add further uncertainty. While Essity’s management has indicated a preference for divesting the segment, UBS warns of operational complexity, stranded costs and dissynergies due to overlap with Personal Care and Professional Hygiene. The bank estimates full divestment could generate stranded costs of 3.5 billion to 6.5 billion crowns, with full benefits materializing by 2030.
UBS also reduced its earnings estimates for the 2026-2028 period by about 6%.
