On Tuesday, Adecco Group AG (ADEN:SW) (OTC: OTC:AHEXY), a leading provider of human resource solutions, had its stock price target lowered by a CFRA analyst to CHF35.00 from the previous CHF40.00, while the Hold rating on the stock was maintained.
The adjustment was made based on a 2024 price-to-earnings ratio of 13.5 times, which is higher than the company's five-year forward P/E average of 10.0 times. The analyst justified the higher P/E ratio due to Adecco (SIX:ADEN)'s improved margin, which resulted from strict cost measures.
The company reported a 3% year-over-year decline in Q1 2024 revenue, totaling EUR 5.7 billion, which aligned with consensus estimates. This decrease was attributed to negative currency translation effects.
Still, on an organic basis, Adecco experienced revenue growth in various regions, with the Asia-Pacific (APAC) region growing by 14%, Europe EEMENA by 8%, and DACH by 7%. This growth was counterbalanced by declines in France by 7%, Northern Europe by 6%, and America by 1%, leading to a 12% drop in EBITA to EUR 157 million.
For the second quarter of 2024, Adecco anticipates stable volume but slightly tougher revenue developments, with expectations for a gross margin that is broadly in line with the previous quarter. The CFRA analyst suggests that companies might continue to show reluctance in hiring in the short term, potentially leading to ongoing revenue growth challenges.
Adecco's better margin performance and a slower revenue decline compared to its peers might provide some support to its stock price in the near term. The Hold rating on the stock reflects this outlook.
InvestingPro Insights
As Adecco Group AG navigates the challenges of the market, real-time data from InvestingPro provides a clearer picture of its financial health and performance. With a market capitalization of $5.89 billion and a Price/Earnings (P/E) ratio standing at 16.85, the company reflects a stable investment profile. The adjusted P/E ratio for the last twelve months as of Q4 2023 is even more attractive at 12.71, indicating a potentially undervalued stock in comparison to earnings.
InvestingPro Tips highlight Adecco's significant position as a prominent player in the Professional Services industry and its consistent shareholder returns, with 29 consecutive years of dividend payments.
The company's dividend yield as of April 2024 is substantial at 4.75%, underscoring its commitment to returning value to shareholders. Analysts are optimistic about Adecco's profitability, predicting the company will remain profitable this year, a sentiment supported by its profitability over the last twelve months.
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