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Investing.com -- J.P. Morgan has placed Carrefour (EPA:CARR) on its Negative Catalyst Watch list, citing a deteriorating earnings outlook and weak cash flow trends, in a note dated Thursday.
The brokerage reaffirmed its “underweight” rating and cut its December 2026 price target to €9 from €10, implying a 30% downside from the June 25 closing price of €12.75.
The downgrade follows expectations of a double-digit year-on-year drop in first-half 2025 operating profit across France, Europe, and Latin America.
J.P. Morgan projects group EBIT down 8% and EPS down 11% over 2025–2027, citing declining profitability and rising financial costs.
The revised 2025 adjusted EPS estimate is €1.42, down from €1.56, while 2026 is lowered to €1.72 from €1.97.
Analysts now model 2025 EBITDA at -2% to -4% year-over-year and ROI down 6%, even with anticipated improvement in the second half. This contrasts with company guidance for “slight” growth. The EBIT margin is expected to decline to 2.3% in 2025 from 2.5% in 2024.
Net financial expenses surged to €759 million in 2024 from €410 million the previous year.
J.P. Morgan expects a continued run rate of €700–€750 million, driven by currency-related pressures in Argentina and higher financing costs at the holding level. Leverage has reached its highest point since 2018, with net debt/EBITDA rising to 2.2x in 2025 from 2x in 2024.
Free cash flow remains a concern. Reported 2024 FCF of €1.46 billion was largely driven by working capital inflows and €536 million in real estate disposals.
J.P. Morgan adjusted underlying FCF to €179 million, down 74% year-over-year, after accounting for asset sales and dividend payments.
In France, EBIT is forecast to decline 13.3% year-over-year in 1H25 despite a 9.3% rise in net sales.
Real like-for-like sales in French hypermarkets and supermarkets fell 3.8% and 1.5%, respectively, in 1Q25.
Competitive pressure is intensifying as Leclerc ramps up pricing efforts, raising risks to Carrefour’s margin outlook.
Europe shows continued softness, with 1H25 EBIT expected to fall 12.8% on flat sales.
Latin America, previously a growth driver, is forecast to see a 7.2% drop in sales and a 10.8% fall in EBIT in the same period.
Group EBIT is expected to contract 11.4% in 1H25 and 3.7% in 2H25 compared to the previous year.
The brokerage’s discounted cash flow model, using a 10.7% WACC and 1% terminal growth rate, yields a fair value of €9 per share.
J.P. Morgan remains below consensus on EBIT, EPS, FCF, and dividends, describing the investment case as “fundamentally compromised.”