On Tuesday, Compass Group (LON:CPG:LN) (OTC: CMPGY) was downgraded by RBC Capital from 'Outperform' to 'Sector Perform' with a maintained price target of GBP24.00. RBC Capital's decision comes as the stock price has increased by 15% year-to-date (YTD), outpacing the local FTSE100 index and ranking high in the Pan-Euro Business Services sector in total shareholder return (TSR) terms.
The analyst from RBC Capital acknowledged Compass Group's status as a resilient stock with structural growth characteristics and a defensive earnings profile. Despite this positive view, the current share price, which aligns with RBC Capital's unchanged price target and exceeds the company's 10-year adjusted price-to-earnings (P/E) average, suggests a more moderate growth outlook for the stock.
Compass Group's current trading level reflects a calendarized P/E multiple of approximately 26 times for the 2024 calendar year and around 23 times for 2025. These figures are significantly higher than the company's 10-year rolling forward average P/E, excluding the years affected by lockdowns, which is just under 21 times.
RBC Capital's unchanged price target of 2,400 pence (GBP24.00) takes into account Compass Group's leading position in organic growth and margins, along with generous assumptions for medium-term and terminal growth. The firm indicated that increasing the price target further would not be justifiable at this point, suggesting that the current valuation fully recognizes the company's growth prospects.
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