Bernstein SocGen Group signaled a positive shift in its assessment of Legrand SA (EPA:LEGD) (LR: FP) (OTC: LGRDY), upgrading the stock from Market Perform to Outperform and raising the price target to €116.00 from €97.00.
The change in rating comes after a period where Legrand has underperformed in comparison to its closest electrical peers such as Schneider Electric (EPA:SCHN) (SU: FP) and ABB Ltd (SIX:ABBN). (NYSE: ABB (ST:ABB)).
The firm's analyst cited a potential reversal in Legrand's fortunes, anticipating a reacceleration of top-line growth. The upgrade is based on the expectation of organic growth and mergers and acquisitions (M&A) reaching inflection points.
Legrand's increasing exposure to the data center market is particularly noteworthy, with projections suggesting that by the fiscal year 2024, data center exposure could nearly double the electricals average, positioning it significantly ahead of its competitors.
Legrand's strategic M&A approach has been highlighted as a key driver for its growth, tripling its data center exposure in seven years, which translates to a compound annual growth rate (CAGR) of 25%.
This includes organic growth of more than 15%, according to Bernstein SocGen Group's estimates. The acquisitions have not only increased Legrand's market share but have also strategically positioned the company to capitalize on growth opportunities related to artificial intelligence (AI).
The firm's analysis points to Legrand's effective rebalancing of its portfolio towards higher growth areas such as busways and Power Distribution Units (PDUs). Additionally, Legrand has expanded into new segments like cooling and power management within the grey space, which are expected to serve as springboards for future growth.
In other recent news, JPMorgan has upgraded its rating for Legrand SA from Neutral to Overweight, raising the price target to €115 from €100. This revised outlook is due to Legrand's involvement in the datacenter sector and an anticipated rebound in core construction markets. Goldman Sachs also raised its price target for Legrand to EUR112 from EUR110, maintaining a Buy rating.
This followed the company's strong Q2 2024 results, particularly in the data center and non-residential market segments. The data center sector, which accounted for about 15% of group sales in 2023, is expected to see a compound annual growth rate (CAGR) of approximately 24% from 2023 to 2027.
On the other hand, Jefferies maintained a Hold rating on Legrand's stock but reduced the price target slightly from EUR104.00 to EUR103.00, following an update to the Low Voltage proxy database. Despite these positive signs in Europe, Jefferies adjusted its EBITA forecast for the year 2024 downward by 1%, influencing the new price target for Legrand's shares.
InvestingPro Insights
Legrand SA (OTC: LGRDY) continues to demonstrate financial resilience and strategic acumen in the electrical industry. The latest data from InvestingPro shows a robust gross profit margin of 52.15% for the last twelve months as of Q2 2024, underlining the company's impressive ability to manage its cost of goods sold and maintain profitability. This aligns with the recent analyst upgrade, as higher profit margins can be a strong indicator of a company's potential for sustainable growth.
Moreover, Legrand's commitment to shareholder returns is evident, with the company having raised its dividend for 4 consecutive years and maintaining dividend payments for 19 consecutive years. The dividend yield stands at 1.5%, reflecting a solid return for investors and a sign of the company's financial health and stability. These figures, combined with the fact that liquid assets exceed short-term obligations, suggest that Legrand is well-positioned to navigate market fluctuations and invest in growth opportunities.
For investors seeking deeper analysis, InvestingPro offers additional insights and metrics on Legrand SA, which can be found by visiting their dedicated page. As of now, there are 7 more InvestingPro Tips available, offering a comprehensive view of the company's financial landscape and future prospects.
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