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Investing.com - RBC Capital upgraded Compass Group (LON:CPG) (OTC:CMPGY) from Sector Perform to Outperform and raised its price target to GBP27.75 from GBP27.00. According to InvestingPro data, Compass Group appears undervalued with a current price of $31.44, trading well below analyst targets ranging from $34 to $40.
The upgrade comes as RBC Capital views the recent pullback in Compass Group’s relative performance as creating an attractive entry point for investors into what it describes as a "high-quality compounder" with less than 15% share of its total addressable market. The recent 6-month price decline of 10.59% supports RBC’s view of a potential entry opportunity for this $53.26 billion market cap company.
RBC Capital noted that Compass Group holds significant advantages over the majority of its direct and indirect competitors, positioning the company well for future growth despite current market concerns. This assessment aligns with the company’s strong 9.69% revenue growth and impressive 26% return on equity.
The firm dismissed worries about consumer spending pressures, AI disruption, and potential impacts from GLP-1 weight loss drugs as "overdone," suggesting these factors are less threatening to Compass Group’s business model than the market believes. InvestingPro data supports this view, showing the company maintains a "GOOD" financial health score of 2.76, indicating resilience against these market concerns.
RBC Capital highlighted that Compass Group’s forward 12-month price-to-earnings ratio has fallen back in line with its adjusted 10-year average, putting the stock "firmly into GARP territory" (Growth At Reasonable Price), while also adjusting its estimates following the company’s fiscal year 2025 results. The current P/E ratio stands at 28.55, with the company offering a modest 1.31% dividend yield for income-focused investors.
In other recent news, Bernstein has reiterated its Outperform rating on Compass Group, maintaining a price target of GBP29.60. This comes as the company prepares to release its fiscal year 2025 results on November 25. Bernstein projects that Compass Group will report an 8.4% organic sales growth, aligning with Bloomberg’s consensus expectations. The firm’s forecast also includes a 7.3% EBIT margin, which is slightly higher than the 7.2% consensus estimate. These projections suggest confidence in Compass Group’s ability to meet its performance guidance. The reiteration of the Outperform rating indicates that Bernstein believes the company’s stock will perform well in the market. Investors are likely to keep a close watch on the upcoming earnings report for further insights.
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