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On Thursday, Morgan Stanley (NYSE:MS) issued a downgrade for Wolters Kluwer (AS:WLSNc) NV (WKL:NA) (OTC: WTKWY), shifting the stock rating from Overweight to Equalweight. The financial firm also adjusted the price target to EUR170.00, a decrease from the previous EUR184.50. The revision reflects a more cautious outlook on the company’s medium-term growth prospects. The stock has already felt the impact, dropping over 12% in the past week. According to InvestingPro data, the company currently trades at a P/E ratio of 35.36x, suggesting a premium valuation relative to its peer group.
The change in rating comes as Morgan Stanley analysts reassess their expectations for Wolters Kluwer’s future earnings. They have reduced their forecasts for the fiscal years 2024 to 2027 by 3-5%. The analysts now predict organic growth to hover around 5.7% for fiscal year 2025 and 6.1% for 2026, a downgrade from their earlier estimates of approximately 6.8% and 6.6%, respectively. InvestingPro analysis shows the company maintaining solid financial health with an overall score of 2.78 (rated as "GOOD"), while achieving revenue growth of 5.95% over the last twelve months.
Morgan Stanley’s analysis acknowledges the strategic priorities set by Wolters Kluwer’s management, which aim to accelerate growth. These strategies include pursuing high-growth adjacencies through various means, fostering innovation, and developing further partnerships. However, the analysts anticipate that the core organic growth will remain stable and that the growth initiatives may lean more towards being driven by inorganic methods, such as mergers and acquisitions, which they have not included in their modeling.
The revised price target and stock rating reflect Morgan Stanley’s expectations of a consistent rate of organic growth for Wolters Kluwer over the medium term. The firm’s analysts have taken a conservative stance, not factoring in potential future mergers and acquisitions into their growth projections for the company.
In other recent news, Wolters Kluwer Financial & Corporate Compliance ( FCC (BME:FCC)) has announced an agreement to acquire Registered Agent Solutions, Inc. (RASi) for approximately $415 million in cash. This acquisition is supported by Lexitas and funds advised by Apax (HN:IBC) Partners, aiming to expand FCC Legal Services’ reach in the U.S. market. RASi, established in 2002, reported revenues of around $52 million in 2024 and has consistently shown profitability. The merger is expected to enhance the customer experience by combining the capabilities of both companies. The acquisition is projected to achieve a return on invested capital at or above Wolters Kluwer’s after-tax weighted average cost of capital in its fifth full year of ownership. In the short term, the impact on Wolters Kluwer’s adjusted earnings is anticipated to be minimal. The transaction is pending regulatory approvals and is expected to close in the first half of 2025.
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