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On Tuesday, Macquarie analysts adjusted their outlook on Cosmos Pharmaceuticals Corp. (3349:JP) (OTC: CSMYF), downgrading the stock to Neutral from Outperform, while simultaneously raising the price target to JPY8,000.00 from JPY7,600.00. This decision reflects a tempered view of the company’s growth prospects despite a recent increase in its share price.
The analysts at Macquarie cited the limited upside potential for Cosmos following its recent share price appreciation as the primary reason for the downgrade. They anticipate that Cosmos will exhibit strong earnings growth in the fiscal year ending May 2025, propelled by an improved gross profit margin, which is attributed to the company’s relaxed Every Day Low Price (EDLP) strategy.
The revised earnings per share (EPS) forecast from Macquarie takes into account the robust earnings growth that Cosmos is expected to achieve. However, the analysts express caution regarding the sustainability of gross profit margin expansion, considering the inherent challenges faced by businesses operating with a discounter model.
Despite the potential for strong performance in the near term, Macquarie suggests that further margin growth could be challenging. The analysts emphasize the importance of Cosmos enhancing its scale to maintain competitive pricing, which is crucial for increasing market share and strengthening its position as a competitive discounter in the industry.
The new price target of JPY8,000.00 reflects Macquarie’s updated expectations for Cosmos’s financial performance, despite the adjustment in the stock’s rating. The analysts’ outlook indicates a belief in the company’s ability to grow but also signals caution as the business moves forward in an increasingly competitive landscape.
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