On Monday, Atos SE (ATO:FP) (OTC: AEXAY) experienced a downgrade in its stock rating by CFRA, moving from Sell to Strong Sell. The firm also reduced the price target for Atos from EUR1.70 to EUR0.70. This adjustment reflects a 12-month target price based on a price-to-earnings (P/E) ratio of 0.64x for 2024, which is significantly below the company's 5-year average forward P/E of 6.7x.
The downgrade was prompted by Atos' weak financial performance, particularly highlighted by the company's first half (H1) 2024 revenue report, which showed a decrease of 2.7% year-over-year, totaling EUR5.0 billion. This decline was attributed to underperformance in both of its business segments, with Eviden and Tech Foundations experiencing drops of 4.2% and 1.4%, respectively.
Atos' operational struggles were further evidenced by an expanded operating loss in H1 2024, which grew to EUR1.7 billion, compared to a loss of EUR434 million during the same period in the previous year. The loss was largely due to impairment charges and reduced sales, particularly noting soft demand in the Americas.
Additionally, Atos' financial health appears to be under pressure as its net debt increased to EUR4.2 billion. This rise in debt contributes to concerns regarding the company's balance sheet strength.
CFRA's report also included a revised earnings per share (EPS) forecast for Atos, lowering the 2024 EPS estimate to EUR1.10 from EUR2.00, and the 2025 EPS projection to EUR2.00 from EUR2.50. The firm's outlook for Atos is cautious, citing market uncertainty and refinancing issues that have led to client decision and booking delays. These factors are expected to significantly impact Atos' business in 2025, leading to the decision to downgrade the stock to a Strong Sell rating.
InvestingPro Insights
The recent downgrade of Atos SE by CFRA to a Strong Sell rating is further substantiated by the company's current financial data and market performance. According to InvestingPro, Atos SE holds a notably low market capitalization of 103.44 million USD, indicating a smaller market presence relative to its peers. The company's P/E ratio stands at a negative -0.03, reflecting its lack of profitability over the last twelve months up to Q4 2023. This is aligned with the reported operational struggles and expanded operating loss in H1 2024.
InvestingPro Tips highlight that Atos operates with a significant debt burden and is quickly burning through cash, which corresponds with CFRA's concerns regarding the company's balance sheet strength. Additionally, despite management's aggressive share buybacks, analysts anticipate a sales decline in the current year, which could further strain the company's financials.
Investors should note that Atos is trading at a low revenue valuation multiple and has experienced a substantial decline in its stock price over the last year, with a 1 Year Price Total Return of -88.55%. These metrics suggest a cautious approach to the stock, mirroring CFRA's sentiment. For those seeking more detailed analysis, InvestingPro offers additional tips on Atos SE's stock performance and financial health.
It's worth mentioning that Atos SE is a prominent player in the IT Services industry, which may influence its ability to recover in the future. For investors interested in exploring the full spectrum of factors affecting Atos' stock, InvestingPro provides a comprehensive list of tips, with several more available on their platform.
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