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Capgemini's stock falls following a downgrade by Jefferies to Neutral

Investing.com
·2 min read

Investing.com - Capgemini (OTC:CGEMY) SE (EPA), the IT services provider, is experiencing a sharp decline for the fourth consecutive session this Friday, plunging 3.83%. This decline is not unrelated to Jefferies' downgrade of the stock rating.

In a note published this morning, the bank's analysts downgraded the stock from "buy" to "hold," citing the delayed market recovery, slowly adjusting consensus expectations, and recent outperformance of the stock price, which reduces the valuation discount. They also noted that Capgemini remains a well-managed global IT services player.

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More specifically, the analysts highlighted that the IT services industry's recovery, initially expected for 2024 after a slowdown in 2023, is starting to decelerate, making it difficult to see how Capgemini could avoid the trend.

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Regarding the impact of AI, Jefferies noted that automating certain tasks will ultimately increase the company's addressable market. However, they emphasized that periods of significant technological change are more investment opportunities than margin optimization phases. Consequently, the bank forecasts a margin of 13.7% against a consensus of 14% for the 2025 fiscal year.

The analysts also mentioned that their below-consensus free cash flow projections for 2024 imply a yield of 5.6%, leading to a revised target of 195 euros according to their models, down from 255 euros previously (-23.5%).

Regarding targets, Jefferies also envisions a bullish scenario in which Capgemini's stock could reach 235 euros, and a bearish scenario with a target of 145 euros.

Lastly, it's worth noting that today's drop brings Capgemini's losses to -11.3% compared to Monday's close.

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