On Thursday, Hays (LON:HAYS) Plc (HAS:LN) (OTC: HAYPF) experienced a downgrade in its stock rating by analysts at Morgan Stanley (NYSE:MS), shifting from Equalweight to Underweight. Accompanying this downgrade, the firm also reduced the price target for Hays from £0.84 to £0.70. The adjustment reflects Morgan Stanley's concerns about the potential risks facing the global recruitment firm.
The analysts at Morgan Stanley have identified several factors contributing to the negative outlook for Hays. They pointed out the challenging environment of the staffing market, which currently shows no signs of improvement. The warning follows a negative performance indication from Sthree, a peer in the industry, which recently issued a profit warning, signaling broader industry challenges.
Hays' significant reliance on the German market, which is expected to account for approximately 65% of the company's operating profit for the fiscal year 2024, was highlighted as a particular vulnerability. The analysts expressed concern regarding the uncertainty in this market and its potential impact on Hays' financial performance.
Furthermore, Morgan Stanley noted Hays' limited free cash flow (FCF) generation prospects over the coming year. This financial position is compounded by a deteriorating net cash situation on the company's balance sheet. The combination of these factors is believed to pose a threat to the firm's ability to sustain its dividend into fiscal year 2025 and to return additional cash to shareholders over the next three years.
The downgrade and the revised price target reflect Morgan Stanley's assessment of the risks associated with Hays' financial outlook and market position. The forecasted challenges for Hays include both industry-wide issues and company-specific concerns that may affect its future earnings and shareholder value.
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