On Thursday, Morgan Stanley (NYSE:MS) analysts downgraded ISS A/S (ISS:DC) (OTC: ISFFF) stock rating from Equalweight to Underweight and reduced their price target from DKK142.00 to DKK127.00. The revision reflects concerns about the company's growth and profitability as it heads into 2025. Analysts at Morgan Stanley expressed increasing pessimism about ISS's organic growth and profitability momentum, which prompted the change in recommendation.
Morgan Stanley highlighted the lack of significant recent contract wins for ISS, with the exception of the Department for Work and Pensions (DWP), as a contributing factor to the downgrade. The analysts pointed out that reaching the company's mid-term organic growth target of 4-6% this year could be difficult, especially as pricing continues to normalize.
The increased labor costs in the United Kingdom (TADAWUL:4280), which accounts for approximately 13% of ISS's group sales, were also cited as a potential issue. According to the analysts, it may become increasingly challenging for ISS to fully pass through cost inflation to customers. This concern arises after two years of elevated pricing, which could now negatively impact the group's margins.
Additionally, Morgan Stanley noted that the ongoing arbitration process regarding the DT contract remains an overhang for ISS's shares. This factor, although not central to the downgrade decision, was mentioned as an additional concern for the stock's outlook.
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