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Investing.com -- Sodexo (EPA:EXHO) faced renewed pressure as Barclays (LON:BARC) and HSBC downgraded the stock, raising concerns over growth prospects, contract retention, and profit margins.
Barclays’ decision follows Goldman Sachs’ downgrade just a day earlier, downgrading the stock to "equal weight" rating from "overweight," and cutting its price target to €64 from €90.
While HSBC went further by slashing its price target to €60 from €110, shifting its rating to “hold” from “buy.”
HSBC pointed to multiple challenges, including weak commercial performance, delays in healthcare contracts, and the loss of a major client.
While the broader industry faces enrollment declines, HSBC flagged that Sodexo’s struggles stem from company-specific issues, particularly its inability to retain key contracts.
The recent announcement of another large contract loss in the first half of fiscal 2025 is expected to exacerbate retention struggles, raising doubts about the company’s long-term profit trajectory.
Barclays echoed similar concerns, emphasizing that rising costs and competitive pressures could weigh on profitability.
With revenue growth falling short of expectations and operational challenges persisting, the downgrade signals skepticism over Sodexo’s ability to stabilize its financial performance.
The successive rating cuts from three major financial institutions reflect growing uncertainty around Sodexo’s strategic direction.
Retention remains a critical issue in contract catering, as high client turnover directly impacts revenue and margins.
While the company has introduced leadership changes, particularly in its Education segment, analysts remain cautious about whether these shifts will translate into meaningful improvement.