Capgemini shares rose on BofA By Investing.com upgrade

Investing.com — Shares of Capgemini ( EPA: ) rose on Tuesday after BofA Securities upgraded the stock to “buy” from “neutral” and raised its price objective to €250 from €209, reflecting upside potential of 38% compared to the current assessment.

At 7:21 a.m. (1121 GMT), Capgemini was trading 6.3 percent higher at €191.80.

The upgrade follows Capgemini’s recent guidance reset, which came after the company cut its guidance for the July 2024 fiscal year.

“We now believe that the level of medium-term growth expectations is more realistic, with consensus declining to -1.6%/+3.6% growth for 2024/2025 versus +0.7/+6.7% in June, while relative valuation to global peers returned to attractive levels at multi-year relative lows,” analysts at BofA Securities said.

BofA pointed to Capgemini’s valuation as a key reason for the upgrade. The company is trading at a 45% discount to Accenture (NYSE: ), compared to a historical discount of 31%, offering significant upside potential for investors. Capgemini’s price-to-earnings ratio of 15x is at a long-term low compared to global peers.

BofA pointed to positive demand signals from global IT services peers, particularly in the US and India, where IT services indicators show the best performance since the first half of 2022.

The BofA Europe IT Services indicator also points to a gradual recovery in demand, particularly in the employment component, which has improved considerably. This aligns with Capgemini’s forecast of a gradual recovery in growth over the medium term and an improving outlook for the overall market.

Capgemini is well positioned to benefit from the growing demand for digital transformation, particularly in cloud services and the deployment of generative AI technologies.

BofA believes that Capgemini’s expertise in these areas, combined with a more stable demand environment, positions it for significant growth over the long term.

The consensus base case for 2025 assumes a growth rate of 3.5%, which BofA considers realistic and which can benefit from GenAI-led projects.

Despite BofA’s optimism, the brokerage acknowledges that challenges remain. The outlook for discretionary spending on IT services remains uncertain, particularly in sectors such as aerospace and automotive, where Capgemini has exposure.

However, the company’s focus on cost-payment and managed services could help mitigate this risk, especially as companies prioritize operational efficiency over discretionary consulting projects.