On Monday, Citi reaffirmed its Buy rating on Capgemini SE (CAP:FP) (OTC: CAPMF), with a steady price target of EUR215.00. The endorsement follows Accenture (NYSE:ACN)'s report of first-quarter fiscal year 2025 revenue growth surpassing its guidance range. InvestingPro analysis indicates Capgemini, currently trading near its 52-week low at $162.20, appears undervalued with a market capitalization of $27.77 billion and a moderate P/E ratio of 15.7x. Accenture also increased its full-year 2025 revenue growth forecast, which notably does not yet account for a potential rise in discretionary spending.
According to the analyst's observations, the demand pattern during the quarter remained consistent, with a focus on large transformation projects, while the overall spending, especially on smaller deals, showed no signs of improvement. The growth rate has seen a boost from these large deals, with progress across various industry verticals and in both the Americas and EMEA regions, although France's performance was highlighted as weak. With annual revenue of $23.8 billion and a strong free cash flow yield of 9%, Capgemini maintains robust financial health, earning a "GOOD" rating from InvestingPro's comprehensive analysis system.
The analyst pointed out that GenAI remains a driving force behind the demand for transformation, albeit with funds being reallocated from other areas. These trends come in the wake of recent insights from a Global IT Services trip, which suggest a slow but steady recovery in demand for the sector, with varying implications for different regions and verticals.
For Capgemini specifically, the analyst finds the current trajectory of demand evolution to be a positive sign, reinforcing the Buy rating on the stock. The company's performance seems aligned with broader industry movements, indicating a cautious optimism for its future prospects.
InvestingPro subscribers can access 8 additional key insights about Capgemini, including its 19-year dividend payment track record and detailed financial health metrics in the comprehensive Pro Research Report.
In other recent news, Capgemini reported a revenue decline in Q3 2024, attributed to a challenging environment, particularly in the U.S. manufacturing sector. Despite these challenges, the company maintained its organic free cash flow target and expressed confidence in long-term growth prospects, driven by digital transformation investments. The company's Q3 revenues fell by 1.6% at constant exchange rates, and bookings were slightly down by 0.8%. However, the Financial Services sector showed improvement, while Manufacturing faced challenges, particularly in North America.
Capgemini also secured significant contracts in cloud services and AI, including a notable €600 million deal. The company revised its Q4 growth outlook to -2% to -2.4% and operating margin forecast to 13.3% to 13.4%. Despite current challenges, management remains optimistic about a return to 7% to 9% growth in the medium term.
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