Softcat Stock Downgraded to "Underperform" by Jefferies Analyst - What Investors Need to Know
In a surprising move on Friday, Jefferies downgraded its rating on Softcat Plc. stock from "Buy" to "Underperform." This decision comes as a result of a discrepancy between the company's current valuation and its future earnings growth potential. The analyst at Jefferies has revised the price target for Softcat to GBP14.90, down from the previous target of GBP19.50.
The main reason behind this downgrade is the forecast for Softcat's earnings before interest and taxes (EBIT) for the fiscal years 2025 and 2026. The consensus expectations for EBIT growth during these years are higher than what Softcat typically aims for, which could lead to a decrease in future earnings expectations.
Softcat's current market valuation suggests a high EBIT growth rate of 20% to 25%, which is significantly above industry standards. Jefferies believes that this premium valuation is at risk due to the forecast uncertainties.
To determine the new price target, Jefferies used discounted cash flow (DCF) assumptions similar to those used for another company in the sector, Bytes. This comparison led to the price target being lowered to 1490p. The analyst at Jefferies stresses the importance of reassessing growth expectations to accurately reflect Softcat's trajectory and valuation.
Investors and market observers should closely monitor Softcat's performance and valuation following this rating change, as the company moves forward in the upcoming fiscal years.
In conclusion, this downgrade by Jefferies highlights potential risks in Softcat's growth and valuation. Investors should consider this new information when making decisions about their investments in the European technology sector.