J.P. Morgan has put DSM-Firmenich on Negative Catalyst Watch as the company prepares to report its first-half results on July 30, saying there is downside risk to third-quarter organic sales growth and to earnings in the second half of the year.
The broker noted the shares of the Swiss-Dutch flavors and fragrances maker have climbed roughly 40% over the last three months, substantially outperforming the sector's 6% rise, even though the stock is still down about 3% over the past year compared with a 4% gain for the sector.
According to J.P. Morgan, the recent rally appears to have been driven by a reduction in investor concern about consumer demand following a sharp fall in oil prices, but the firm warned that this optimism may be premature.
Four drivers of the broker's caution
- Earnings downgrade momentum: J.P. Morgan expects continued earnings downgrades. Its full-year adjusted earnings-per-share estimates for 2026 and 2027 sit 3% and 8% below Bloomberg consensus, respectively. The firm also pointed to historical seasonality as a source of further downside risk.
- Growth assumptions under pressure: Mid-term organic growth expectations of about 5%, as implied by consensus and company guidance, are judged "difficult to underwrite" by the broker. That target compares with an approximate 3-4% compound annual growth rate over the past four years.
- Earnings quality and cash conversion concerns: J.P. Morgan flagged weaker earnings quality and lower free cash flow conversion. It noted that restructuring and other costs have continued to sit below adjusted results, and that free cash flow conversion has "lagged peers."
- Valuation appears extended: The broker described valuation as stretched, citing roughly 14 times 2026/2027 estimated EV/EBITDA, price-to-earnings ratios of about 26 times for 2026 and 25 times for 2027, and free cash flow yields of 2.9% and 3.3% for the two years.
J.P. Morgan also observed that the company's price-to-earnings multiple represents a "sizeable premium" to Croda, which the broker rates overweight and which trades at about 20 times/17 times on comparable metrics. J.P. Morgan stated it does not view that premium as justified.
Margin and seasonality analysis
The broker pointed to a historical pattern in which full-year adjusted EBITDA margins have been below first-quarter levels in each of the past four years. By contrast, current full-year 2026 consensus assumes a margin above the first-quarter level. J.P. Morgan highlighted that first-quarter 2026 results were supported by customer pre-buying in the Perfumery & Beauty segment - a higher-margin area - which it said likely inflated the quarterly margin.
Using seasonality from the past four years, J.P. Morgan calculated that full-year 2026 adjusted EBITDA would be about €1.7 billion before adjusting for the pre-buying benefit, a figure it described as "~4% below consensus."
Updated near-term estimates and market signals
For the second quarter of 2026, J.P. Morgan left its organic sales growth estimate unchanged at 4.3% year-on-year, which it said is broadly in line with consensus of 4.5%. The broker did raise its second-quarter adjusted EBITDA estimate by 1% to €454 million.
On end-market trends, the firm indicated that U.S. beauty and personal care demand showed signs of cooling in the second quarter, particularly in color cosmetics, and that there was some deceleration in fragrance. J.P. Morgan cited a recent warning from Douglas Group, a European fragrance-focused premium beauty retailer, as evidence of "choppy beauty demand trends in Europe." It also referenced commentary from Novonesis pointing to softer U.S. human health and probiotics demand.
Overall, J.P. Morgan's analysis combines near-term estimate adjustments with a broader skepticism about current consensus growth and the quality of earnings, leading to its Negative Catalyst Watch designation and underweight rating with a December 2027 price target of €60.