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On Wednesday, Goldman Sachs analyst team adjusted their stance on Sodexo (EPA:EXHO) (SW:FP) (OTC: SDXAY), downgrading the stock from Buy to Neutral and significantly reducing the price target to €73.00 from the previous €96.00. The revision comes in response to Sodexo’s first-half 2025 results, which fell short of market expectations in terms of organic growth and underlying operating profit margins. The stock has declined nearly 15% in the past week, with current gross profit margins at 12%. Additionally, the company revised its full-year guidance downwards for these key financial metrics. According to InvestingPro analysis, the stock appears undervalued at current levels, with additional insights available through their comprehensive valuation models.
Goldman Sachs’ previous Buy rating was predicated on the potential for Sodexo’s valuation to improve relative to its competitor, Compass Group (LON:CPG), which trades at a premium. The investment firm had anticipated that Sodexo could narrow this valuation gap through better operational performance, focusing on net new business and profit margins. With a P/E ratio of 53.9x and EV/EBITDA of 9.25x, along with a steady dividend history spanning 24 consecutive years, the company maintains strong fundamentals despite current challenges. However, the expected improvements in net new business have been delayed until the second half of 2025.
The less-than-expected performance in the first half of the year has led Goldman Sachs to revise their earnings before interest and taxes (EBIT) forecasts for Sodexo. They now project a decrease of approximately 7% over the forecast period from 2025 to 2029. Despite these challenges, InvestingPro data shows the company maintains a healthy financial position with an Altman Z-Score of 4.71 and revenue growth of 5.1% in the last twelve months. The analyst noted that this adjustment and the latest results from Sodexo have diminished their confidence in a near-term catalyst that could materially re-rate the stock within a 12-month investment horizon.
In their commentary, Goldman Sachs highlighted the challenges faced by Sodexo in achieving the operational milestones necessary for a re-rating. The company’s progress has been slower than expected, causing a shift in the investment firm’s outlook for the stock.
Investors in Sodexo will be monitoring the company’s performance closely in the second half of the year, as it strives to meet its revised targets and regain the confidence of analysts and shareholders alike. The stock’s future trajectory will depend on the company’s ability to deliver on its promises and demonstrate improved financial health.
In other recent news, Sodexo has been the subject of significant analyst activity and financial projections. Deutsche Bank (ETR:DBKGn) analyst Andre Juilard has adjusted Sodexo’s price target to €93.00 from €94.00 while maintaining a Buy rating. Juilard expects Sodexo’s first-half revenue to reach approximately €12.6 billion, reflecting a 4.6% like-for-like increase, and projects an underlying EBIT of €673 million, marking a 10% rise from the previous year. Despite some skepticism, Deutsche Bank remains optimistic about Sodexo achieving its fiscal year 2025 targets, which include a 5.5% to 6.5% like-for-like growth and an EBIT margin expansion of 30-40 basis points.
Conversely, Bernstein analysts have downgraded Sodexo from Outperform to Market Perform, reducing the price target to €86.80 from €97.30. This downgrade comes after a weaker-than-expected first-quarter revenue performance, raising concerns about Sodexo’s ability to meet its full-year targets. Bernstein has revised its EBIT and EPS estimates to be 1% below consensus, citing potential challenges in the European operations and reliance on a stronger second half of the fiscal year. These contrasting views highlight the varied analyst expectations for Sodexo’s near-term financial outlook.
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