Analysts at RBC Capital Markets raised their target price on foodservice company Compass Group from 1,340.0p to 1,500.0p on Wednesday following the group’s “strong” first-half results earlier in the month.
RBC Capital stated that it had opted to raise both its 2022 and 2023 earnings per share estimates on the stock by 10% following the interim results, reflecting better organic growth and strong FX tailwinds.
However, although RBC admitted it had “underestimated the strength of the outsourcing fillip to revenue growth coming out of the last set of lockdowns”, the Canadian bank also remains concerned about “collapsing consumer disposable incomes” and a corresponding deteriorating employment outlook in key markets.
“CPG remains a well-loved name, especially among those viewing it through a travel and leisure sector lens. However, despite raising our discounted cashflow-derived price target by 12% to 1,500.0p to reflect free cashflow upgrades, we still see the shares, trading on 27.0 times calendar year 2022 estimated price-to-earnings and 21x enterprise value/earnings before interest, tax, and amortisation, as expensive versus other large-cap defensive growth names in the business services sector,” said the analysts, who reiterated their ‘underperform’ rating on the stock.
“We also continue to see a more interesting, significantly cheaper contract catering turnaround opportunity at Sodexo.”
Reporting by Iain Gilbert at Sharecast.com
