On Tuesday, Citi adjusted its price target on Capgemini SE (CAP:FP) (OTC: CAPMF), reducing it to €235 from the previous €245, while retaining a Buy rating on the stock.
The revision follows Capgemini's first-half 2024 financial update, which presented a contrast of disciplined operational execution against a softer revenue report. The company has revised its revenue growth forecast for 2024, suggesting a below-typical performance for the second half of the year, but this move is believed to be adequately cautious.
Capgemini's update indicates a shift in focus towards potential growth and profit margins for 2025. The company's cautious stance for 2025 is based on the current unclear demand trajectory, with expectations set for no substantial return of discretionary spending.
A gradual recovery is anticipated, supporting revenue growth estimates of approximately 3-5%. Despite the challenges, Capgemini is recognized for its strong operational management and is projected to experience enhanced margin and free cash flow (FCF) growth in 2025.
The uncertainty in demand and increased caution in some sectors have prompted Citi to remove Capgemini from its Focus List. However, the firm acknowledges that Capgemini's stock is trading at a forward multiple of approximately 14-14.5 times the estimated 2025 earnings per share (EPS), which is close to the historical low forward multiple range of around 12-13 times. This valuation also corresponds to an estimated free cash flow yield of roughly 7%.
Capgemini's current situation reflects the broader challenges faced by companies in maintaining growth amidst uncertain market conditions. Citi's price target adjustment and rating maintain a perspective on the company's financial prospects while acknowledging the present economic environment's impact on future performance.
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