On Friday, Citi analyst Balajee Tirupati adjusted the price target for Capgemini SE (CAP:FP) (OTC: CAPMF), reducing it to €215 from the previous €225. Despite the lower target, the firm continues to endorse a Buy rating for the stock.
Capgemini recently disclosed a weaker-than-expected third-quarter update for 2024, prompting the company to revise its revenue outlook for the year downwards. The updated forecast has led to a second reduction in estimates, signaling ongoing uncertainty about the timing of demand recovery.
The company's management anticipates a return to organic growth, which is more likely to occur in the second half of 2025, assuming no significant changes in the current demand situation. The expected range for full-year 2025 organic growth is between a decline of 1% and an increase of up to 2%.
Despite the challenges, Capgemini's operational execution remains solid. Citi projects another year of growth in margins and free cash flow (FCF) for the company in 2025. The current valuation of Capgemini's stock, with a price-to-earnings (P/E) ratio of approximately 14 times for 2025 and 13 times for 2026 estimates, is considered attractive by Citi. This valuation is close to historical lows, suggesting potential for a re-rating if market trends stabilize and a gradual recovery takes place.
Citi's outlook for Capgemini is based on the expectation that the company will manage to navigate through the current uncertain demand environment and capitalize on future growth opportunities. The maintained Buy rating indicates Citi's confidence in the company's potential for value appreciation in the medium term.
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