On Friday, Citi adjusted its outlook on Capgemini SE (CAP:FP) (OTC: CAPMF) stock, reducing the price target to €225 from the previous €235. Despite this change, the firm continues to recommend a Buy rating.
The revision comes ahead of Capgemini's third-quarter 2024 update, which is scheduled for October 30, 2024. Citi anticipates a slight improvement in the year-over-year revenue decline rate and expects management to indicate that the 2024 revenue growth will likely be at the lower end of its guidance range.
Citi's analysis suggests that while Capgemini's updated 2024 outlook in July had already accounted for a softer progression, the situation has further deteriorated, particularly in the automotive sector and in the French market. However, recovery in other segments such as Banking, Financial Services, and Insurance (BFSI) & Technology appears to be on track, with signs of discretionary spending returning.
The lowered revenue growth forecasts for the second half of 2024 and the calendar year 2025 reflect a delayed and more gradual recovery than previously anticipated. Despite the sluggish demand environment, Citi expects Capgemini to maintain solid performance with healthy bookings, margin expansion, and improved free cash flow.
The current stock valuation, which hovers around 15 times the 2025 earnings per share and 13 times the 2026 earnings per share, is considered low compared to industry peers. This valuation reflects the uncertainties in the end market. Citi suggests that a gradual recovery and stabilization of trends could lead to a re-rating of the stock. The firm reaffirms its Buy rating with the updated price target of €225.
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