Aging Populations And Digitalization Will Expand Hygiene Demand Globally

Key Takeaways

• Premium product trade-up and demographic shifts will drive sustained net margin expansion and higher operating leverage as age-related demand accelerates.
  
• Innovation, digitalization, and targeted brand strategies will boost topline growth and pricing power, expanding earnings beyond consensus expectations.
  
• Structural headwinds from weak volumes, rising input and compliance costs, and fierce competition threaten margins, profitability, and Essity's market position unless cost controls quickly improve.

Catalysts

Develops, produces, and sells hygiene and health products and services in Europe, North and Latin America, Asia, and internationally.

• Analyst consensus expects net margin improvement from high-margin categories, but this view understates the likely magnitude: given Essity's 17 consecutive quarters of growth in Medical Solutions, the accelerating trade-up to higher-value incontinence and feminine care products, and the company's proven ability to offset cost inflation with price increases, the business could see an outsized, sustained lift to group net margins as premium product penetration compounds with age-related demand.
  
• While analysts broadly factor in innovation and new product launches driving future revenues, this likely under-appreciates the embedded, recurring pipeline effect: brand award-winning marketing campaigns and highly targeted rollouts like TENA Men upgrades and coreless tissue technology should not only grow topline faster, but also lead to structurally higher gross margins and brand price power, enhancing earnings far beyond consensus EPS expectations.
  
• Essity stands to fully capitalize on massive untapped demand from demographic and societal shifts, with only 5% to 7% of men over 40 currently using purpose-made incontinence products and global aging accelerating-this unlocks multiyear, double-digit volume growth in categories where Essity already holds market leadership, rapidly expanding both revenue and operating leverage.
  
• The company's rapidly improving digitalization, direct-to-consumer initiatives, and e-commerce partnerships (e.g. new Amazon contracts kicking in), coupled with supply chain localization, mean that Essity is poised to not just absorb but expand margin despite ongoing inflationary or tariff headwinds-this positions the company for sustained gross margin and net earnings expansion as online and digital channel sales scale.
  
• With rising living standards and brand adoption rates in emerging economies, evidenced by strong retail and feminine care growth across Mexico, the UK, and Australia, Essity holds a differentiated multi-tier strategy that enables both premiumization and mass market share gains-this geographic and brand-layered expansion can accelerate overall revenue well above current consensus models, especially as urbanization and health awareness remain strong tailwinds.

Essity Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Essity compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Essity's revenue will grow by 2.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.6% today to 10.3% in 3 years time.
• The bullish analysts expect earnings to reach SEK 15.6 billion (and earnings per share of SEK 23.49) by about July 2028, up from SEK 12.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, up from 13.9x today. This future PE is greater than the current PE for the GB Household Products industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 1.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.91%, as per the Simply Wall St company report.

Essity Future Earnings Per Share Growth

Risks

• Sustained weak volume growth, especially in segments like Baby Care and Professional Hygiene, alongside increasingly price-sensitive consumers and persistent low birth rates, poses a significant headwind to organic revenue growth over the long term.
  
• Elevated input cost volatility from pulp, energy, and distribution, combined with rising tariffs and limits to passing costs onto customers-particularly in competitive or regulated markets such as Health & Medical and Professional Hygiene-threatens to compress net margins and overall profitability.
  
• The company faces intensifying price competition from both low-cost local players and private label brands, especially in lower and mid-tier categories and in the Baby Care segment, which increases the risk of ongoing margin erosion and lost market share, impacting both revenues and margins.
  
• Growing demand for sustainability and reduced single-use plastics, along with increasing regulatory scrutiny and costs, could undermine Essity's position in disposable hygiene products, pressuring core revenues and requiring costly adaptations.
  
• Persistently rising SG&A costs-often IT and personnel-driven-and the lack of volume leverage due to weak growth, present a danger of ongoing margin compression and lower earnings unless cost control measures yield faster and more structural results.

Valuation

• The assumed bullish price target for Essity is SEK330.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Essity's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK330.0, and the most bearish reporting a price target of just SEK230.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SEK151.9 billion, earnings will come to SEK15.6 billion, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 4.9%.
• Given the current share price of SEK247.4, the bullish analyst price target of SEK330.0 is 25.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.