On Monday, Citi adjusted its outlook on Capgemini SE (CAP:FP) (OTC: CAPMF) shares, reducing the price target from EUR260.00 to EUR245.00, yet reaffirming a Buy rating on the stock.
The firm anticipates Capgemini to present its first-half 2024 results on July 26, forecasting a performance largely in line with expectations, with a slight deceleration in revenue decline for the second quarter, solid bookings, and a marginal year-over-year margin improvement for the first half.
Capgemini's upcoming earnings report is expected to draw investor attention, particularly concerning the current demand environment and prospects for recovery. Observations from peers indicate ongoing cautious spending by clients, with insights from Citi's Chief Information Officer (CIO) survey presenting a varied outlook.
Citi predicts that Capgemini's management will likely adjust the revenue forecast to the lower end of their predicted range, make a slight increase to margin projections, and keep free cash flow (FCF) expectations stable.
The consensus among sell-side analysts is leaning towards the lower end of the company's guidance range, with investor expectations potentially falling even below that. Despite the challenging macroeconomic climate, Citi notes Capgemini's consistent operational performance.
While revenue forecasts have been lowered, Citi still anticipates the company to achieve the upper end of its 2024 margin goals and to surpass FCF expectations, supporting the decision to maintain a Buy rating on the shares.
In other recent news, Capgemini reported a slight dip in its first quarter 2024 revenue, recording a -3.3% year-on-year growth at constant currency, with earnings totaling EUR 5.5 billion. Despite this, Capgemini remains committed to its 2024 goals, projecting revenue growth of 0% to 3% at constant currency and retaining its margin targets.
Citi has reaffirmed a Buy rating on Capgemini, maintaining a price target of EUR260.00, following recent financial disclosures from Accenture (NYSE:ACN) which reported May quarter revenues aligning with general expectations.
These developments indicate a positive outlook for the IT Services sector and for Capgemini in particular, despite the sector's limited visibility on recovery. The company is experiencing an increase in large-scale deals and growth in generational projects, laying the groundwork for future expansion.
According to Citi, the underlying fundamentals of the IT Services industry remain intact, contributing to a stronger foundation for growth, expected to benefit companies like Capgemini in the longer term.
Capgemini anticipates a gradual market improvement, forecasting an attractive exit rate in Q4 2024. Despite challenges in the TMT and Financial Services sectors due to spending constraints, Capgemini sees growth in the Energy & Utilities and Public sectors.
The company's generative AI offering is also gaining traction with a growing pipeline and larger deals signed. These are among the recent developments for Capgemini, which remains confident about achieving a mid-to-high single-digit growth rate by the end of 2024.
InvestingPro Insights
In light of the recent outlook adjustment by Citi on Capgemini SE (CAP:FP) (OTC: CAPMF), it's valuable for investors to consider additional insights from InvestingPro. Capgemini's commitment to shareholder returns is demonstrated by its track record of raising dividends for 4 consecutive years, and it has maintained dividend payments for an impressive 19 consecutive years, showcasing its financial stability. While the company is trading at a high P/E ratio relative to near-term earnings growth, with a current P/E ratio of 19.78 and an adjusted P/E ratio for the last twelve months as of Q4 2023 at 18.05, it's worth noting that Capgemini is a prominent player in the IT Services industry and analysts predict the company will be profitable this year.
The stock's low price volatility could be a sign of investor confidence in the company's steady performance, even as the market faces challenges. With a market capitalization of $35.91B USD and a gross profit margin of 26.85% for the last twelve months as of Q4 2023, Capgemini's financial health remains robust. Moreover, the company has proven profitable over the last twelve months, which may reassure investors looking for stability in their portfolio.
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