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Investing.com -- Goldman Sachs downgraded IMI Plc (LON:IMI) to "neutral" from "buy" and cut its 12-month price target to 2,120p from 2,220p, citing weaker short-cycle growth, foreign exchange headwinds, and subdued capital expenditure expectations across key markets.
In a note dated Tuesday, Goldman analysts revised their FY25 adjusted EPS forecast to 129.8p from 133.1p, placing it at the low end of IMI’s own guidance range of 129p–136p.
The downward revision reflects reduced expectations in organic sales growth, now forecast at 2.6% versus 5.3% previously, and reflects a broad-based slowdown across IMI’s core business segments.
The downgrade is attributed in part to a sharp decline in the U.S. ISM manufacturing PMI’s new order-to-inventory (NOI) ratio, which fell to 0.85 in March.
According to Goldman, this level has only been seen twice in the past 16 years and typically coincides with contractions in IMI’s Industrial Automation business, which is now expected to contract by 3% in FY25.
Process Automation’s outlook has also been tempered. Goldman now forecasts FY25 organic sales growth at 7.5%, down from 8.5%, citing lower capex expectations in 7 of the 8 end-markets tracked.
Although large orders in nuclear and LNG offered some offset, the general slowdown in customer investment has led to a 5% cut in forecast orders for FY25 and FY26.
In the Life Technology segment, growth expectations were also revised down. Life Science & Fluid Control is recovering slower than anticipated, while Transport continues to face declining demand.
Goldman projects a 0.7% organic growth for Life Technology in FY25, down from 3.6%. Transport, which is under strategic review by IMI, is now forecast to shrink by 7.8% in the same period.
The brokerage also identifies increased foreign exchange pressure as a significant factor, with FX expected to reduce FY25 earnings by 1.9%, reversing a previously neutral impact. Additionally, Goldman cut its estimate of M&A contribution to 0.5% from 0.8%.
Despite the earnings cuts, the FY25 group adjusted EBIT margin forecast remains unchanged at 20.1%, supported by a shift in revenue mix toward higher-margin segments. Still, Goldman revised FY25 sales, EBIT, and net income forecasts down by around 5%–6%.
Free cash flow estimates were also lowered by 9% for FY25 and 8% for FY26, citing reduced earnings and a £10 million increase in capex based on the company’s updated guidance.
While Goldman sees 10% upside to the revised price target, it noted that IMI shares have underperformed the broader European multi-industry average over the past three months.