Investing.com -- Legrand 's (EPA:LEGD) shares fell over 7% on Monday after Jefferies downgraded the company to an “underperform” rating, citing widening growth and performance gaps compared to its competitors in the European electricals sector.
The analysts pointed to the increasing disparity in organic growth rates and margins between Legrand and the so-called "Mag 3" – Schneider Electric (EPA:SCHN), ABB (ST:ABB), and Siemens (ETR:SIEGn) – as a key concern.
“We model the Mag 3 to grow 6.9% organically in FY25/26 vs 3.6% at LR in addition to a cumulative margin expansion of 160bps vs none at LR,” Jefferies said.
Jefferies analysts also flagged structural challenges in some of Legrand’s core markets. The U.S. office sector, which represents a big portion of Legrand’s commercial exposure, is projected to remain sluggish, potentially delaying a meaningful recovery until 2026.
Additionally, European construction markets have been under pressure, with weak purchasing managers’ index figures for December 2024 in key countries like Germany and France. This has further dampened the growth outlook for Legrand.
Jefferies lowered its price target for Legrand to €86 from €103, implying a 16% downside from the current market price.
The analysts attributed this adjustment to the company's weaker-than-expected margin and return on invested capital performance compared to peers.
They also criticized Legrand's relatively expensive acquisitions, particularly in the data center space, which have failed to deliver proportional returns.
The downgrade comes as Jefferies emphasizes stronger investment opportunities in competitors like Schneider Electric, which offers more attractive exposure to sectors like discrete automation and industrial electrification.
Analysts also expect Schneider and other Mag 3 companies to benefit from a cyclical recovery in their respective markets, leaving Legrand at a competitive disadvantage.