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On Tuesday, JPMorgan analysts revised their stance on Computershare Limited (CPU:AU) (OTC: CMSQY), downgrading the stock from Neutral to Underweight, while slightly increasing the price target to AUD35.00 from AUD34.00. The revision reflects concerns over the company’s earnings per share (EPS) growth prospects for fiscal year 2026 and beyond. This comes despite the company’s impressive 48.47% return over the past year and strong financial health metrics, according to InvestingPro data.
The analysts pointed to several factors influencing the downgrade, including the challenging environment for yield generation, which significantly impacts Computershare’s earnings as Mortgage Servicing (MI) contributes approximately 70% of the company’s profits. They also noted the potential slowdown of the macroeconomic environment compared to more optimistic expectations at the beginning of the calendar year 2025, which could affect transactional revenues that are currently above mid-cycle levels. The company has demonstrated resilience in maintaining dividend payments for 32 consecutive years, though current market conditions pose new challenges.
Another concern raised was the company’s valuation multiple on normalized earnings, which is considered high by historical standards, with a 1-year forward Price-to-Earnings (PE) ratio of around 18.7 times. This is about 1.8 PE points above its historical average of approximately 16.9 times. The analysts argue that this valuation is particularly challenging where earnings could be declining. InvestingPro analysis shows the stock is currently trading near its Fair Value, with additional metrics and valuation insights available to subscribers.
Additionally, JPMorgan highlighted material costs below the line that account for roughly 25% of Computershare’s post-tax earnings. On a more positive note, the firm acknowledged Computershare’s strong balance sheet, which exhibits low gearing compared to its target, potentially allowing for share buybacks or acquisitions. This is supported by the company’s healthy current ratio of 1.51 and moderate debt levels, as reported by InvestingPro.
A key factor in the downgrade was a statement from Computershare’s management during their earnings call. Management suggested that for the company to pursue acquisitions, particularly in corporate trusts, it would require a reduction in interest rates due to elevated price expectations, which presumably would impact earnings. This reasoning was also applied to Computershare’s own business operations, reinforcing the analysts’ decision to recommend an Underweight rating. The company’s next earnings report is scheduled for May 14, 2025, which will provide crucial insights into these concerns.
In other recent news, Computershare Limited reported strong financial results for the first half of 2025, with management income of $394 million contributing significantly to its earnings before taxes, interest, depreciation, and amortization (EBTIDA). The company also revised its earnings per share (EPS) guidance upward to 135 cents per share, reflecting its robust performance. Macquarie analysts maintained a Neutral rating on Computershare, highlighting the company’s operational efficiency and its commitment to completing a share buyback program by the end of fiscal year 2025. Citi analysts also reaffirmed a Neutral stance with a price target of AUD35.00, noting a 19% year-over-year increase in diluted EPS to US65.2 cents per share, which exceeded market expectations.
Goldman Sachs downgraded Computershare from Buy to Neutral, despite raising the price target to AUD35.50, due to currency valuation changes and minor earnings adjustments. Meanwhile, Jefferies analyst Simon Fitzgerald downgraded the stock to Hold, raising the price target to AUD39.50, citing the company’s resilience amid interest rate cuts. Macquarie also downgraded Computershare from Outperform to Neutral, increasing the price target to AUD34.00, driven by valuation concerns and interest rate implications on earnings. These developments underscore the varied analyst perspectives on Computershare’s valuation and future prospects.
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