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On Wednesday, CFRA analyst Lee Zhao Jun downgraded Adecco Group AG (ADEN:SW) (OTC: OTC:AHEXY) stock rating from Hold to Sell and lowered the price target to CHF 20.00, a decrease from the previous CHF 27.00. The revision was influenced by a challenging macroeconomic environment, which led to the adjustment of the price target based on a 2025 price-to-earnings (P/E) ratio of 9.1x, a figure that falls below Adecco (SIX:ADEN)’s five-year forward P/E of 9.8x. According to InvestingPro data, the company currently trades at a P/E of 15.19x with a market capitalization of $4.75 billion, suggesting potential valuation concerns in the current market environment.
The downgrade followed Adecco’s reported revenue decline of 5% year-over-year in Q4 2024, amounting to EUR 5.9 billion. This downturn was attributed to the particularly difficult market conditions in France, which saw a 10% drop, America with a 5% decrease, and Northern Europe experiencing an 11% fall. The analyst pointed out that these market challenges were significant factors in the rating and target price adjustments.
Adecco anticipates an upswing in early 2025, forecasting improved momentum with a higher gross margin and sequential reductions in selling, general, and administrative (SG&A) expenses in Q1 2025. The firm also updated its dividend policy, aiming for a payout ratio between 40%-50% without a set minimum, a move intended to hasten the process of reducing debt. CFRA regarded this policy as conservative.
However, CFRA expressed concerns over the company’s deleveraging progress, suggesting that it might not be sufficient and could indicate potential further declines in the share price. The analyst also noted that companies might continue to be hesitant about hiring in the short term, which could further weaken revenue growth. With a beta of 1.32 and a year-to-date total return of 4.84%, the stock has shown higher volatility compared to the broader market, while maintaining its position as a prominent player in the Professional Services industry.
In conclusion, the analyst stated, "We are disappointed with the scale of its deleveraging, which we think could suggest further downside to the share price. Downgrade to Sell." The revised outlook reflects the expectation of continued headwinds for Adecco in the near future.
In other recent news, Adecco Group AG has seen significant developments concerning its financial outlook and analyst ratings. Bernstein analysts have revised their price target for Adecco to CHF25.30 from CHF26.50 while maintaining a Market Perform rating. They highlighted ongoing challenges in the European market despite some improved momentum in the US. Meanwhile, Jefferies analysts have downgraded Adecco’s stock from Hold to Underperform, citing concerns over the company’s leverage ratio, which stands at approximately three times. Jefferies also reduced the price target to CHF19.50 from CHF29.00, noting the potential need for Adecco to eliminate its dividend for two years to address these leverage concerns. Additionally, Jefferies pointed out that Adecco’s earnings momentum may fall behind its main competitor this year, with possible further downward revisions of earnings forecasts. Both Bernstein and Jefferies suggest a cautious approach to Adecco’s stock, with Bernstein emphasizing a neutral outlook and Jefferies expressing concerns over the company’s financial health and performance prospects. These developments highlight the ongoing challenges facing Adecco and the staffing industry as a whole.
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