Morgan Stanley downgraded Capgemini (EPA:CAPP) to “underweight” from “equal-weight,” citing capped valuation upside and limited visibility into a sustained acceleration in growth, in a note dated Monday.
Stay informed beyond the headlines with premium market insight, AI stock picks, and deep research tools from InvestingPro - 55% off today The brokerage also cut its price target on the French IT services company to €142 from €145. Morgan Stanley said the downgrade follows a rebound in the stock from lows near €120, driven by a return to organic growth in the third quarter and a broader sector valuation uplift.
The analysts said it does not see a pathway to further valuation multiple expansion.
Morgan Stanley said Capgemini’s organic growth has stabilized but remains modest. The brokerage estimates organic growth of about 0.6% in FY25 and about 2.5% in FY26, a sharp reduction from earlier market expectations.
The report noted that consensus expectations for 2026 organic growth have fallen to 2.5% from about 4.5% a year earlier.
The analysts said the acquisition of WNS, which closed in the fourth quarter of FY25, will lift constant-currency revenue growth in FY26.
However, Morgan Stanley said Capgemini’s decision to remove direct disclosure of organic revenue growth makes it harder for investors to assess sequential growth trends, which it said could weigh on sentiment.
Morgan Stanley also pointed to pricing pressure across the IT services sector, saying it is likely to limit further acceleration in revenue growth.
The brokerage cited artificial intelligence-related shifts in client spending priorities, pressure on contract pricing and increased investment requirements as factors constraining growth and margins.
The brokerage said these dynamics are expected to cap valuation multiples across the sector in 2026.
Morgan Stanley said Capgemini trades at a premium to some European peers, which it said is difficult to justify given current growth expectations.
