On Friday, Serco Group PLC (LON:SRP:LN) (OTC: SECCF) experienced a change in stock rating as Jefferies analysts downgraded the company from Buy to Hold. The new price target set by Jefferies is GBP1.75, a decrease from the previous target of GBP2.25. The analysts have cited challenges such as immigration contracts and UK national insurance as headwinds affecting Serco's shares.
In their commentary, Jefferies analysts acknowledged the strength in Serco's market positioning, particularly within the defence sector, and recognized the value in this area of the business. However, they pointed out that the near-term earnings and free cash flow (FCF) momentum appear more subdued. The difficulties arising from Serco's most significant contracts were noted as unhelpful to the company's financial performance.
The analysts elaborated that while they continue to see potential in Serco, the current headwinds might slow down any further positive revaluation of the company's stock. They expressed that despite Serco's attractive valuation, the anticipated re-rating may require more time than previously expected.
The downgrade to Hold reflects a more cautious outlook on Serco's near-term financial prospects. The new price target of 175 pence represents Jefferies' adjusted expectations for the company's future stock performance in light of the identified challenges.
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