On Wednesday, Bernstein SocGen Group adjusted its stance on Elis SA (ELIS:FP) (OTC: ELSSF), shifting the rating from Outperform to Market Perform. Accompanying this downgrade, the firm also set a new price target of €21.40, a decrease from the previous €27.60. This change follows Elis SA's recent move to extend an offer to acquire Vestis (VSTS US), a decision that prompted a reevaluation of the stock's outlook.
The downgrade reflects the analyst's concerns about the potential acquisition's short- to medium-term risks for investors. The firm highlighted uncertainties regarding whether the deal would be accretive to Elis's earnings. Furthermore, there is speculation that even if the acquisition does benefit Elis, the company's operational flexibility could be constrained.
The firm also pointed out that the full benefits of Elis's expertise may take years to manifest in Vestis's performance, drawing parallels to the lengthy integration of Berendsen. This process could potentially delay the realization of expected synergies and improvements.
Additionally, the analyst noted that the market did not anticipate Elis to engage in aggressive merger and acquisition activities, especially so soon after the company had met its deleveraging goals. This unexpected move has introduced an element of surprise that may affect investor sentiment.
To justify the revised price target, Bernstein SocGen Group cited an increase in the risk premium within their discounted cash flow analysis. This adjustment reflects heightened concerns over the proposed acquisition's impact on Elis's financial and operational future.
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