Last Update 08 Jan 26

CAP: AI Partnerships And Cybersecurity Wins Will Drive Future Upside

Narrative Update: Capgemini

Capgemini’s narrative update reflects a reduced Street anchor, as analysts have moved a key price target down from €186 to €165. They cite refreshed assumptions on discount rates and valuation multiples, while largely maintaining their broader constructive stance on the shares.

Analyst Commentary

Analysts have adjusted their view on Capgemini by trimming a key price target to €165 from €186, while keeping a constructive stance on the shares. For you as an investor, the signal is that the equity story is seen as intact, but the margin for error on valuation and execution is being reassessed.

Bullish Takeaways

Bullish analysts maintaining a positive rating see the revised €165 level as still offering upside potential from recent trading ranges, even after accounting for updated discount rate assumptions.
The continued positive stance suggests confidence in Capgemini’s ability to execute on its business model, with analysts comfortable that cash flow and earnings can support the new valuation framework.
Keeping the rating unchanged signals that the reduction in the target is viewed more as a technical recalibration than a shift in the core investment thesis.
The update indicates that supportive views on the company’s longer term positioning remain in place, even as analysts fine tune their models.

Bearish Takeaways

Bearish analysts may focus on the cut from €186 to €165 as a sign that prior expectations for upside were too optimistic relative to current risk and return assumptions.
Refreshed discount rates and valuation multiples point to increased scrutiny around the level of risk investors are being asked to accept for the expected earnings profile.
The need to lower the target could reflect greater caution around execution, such as the ability to sustain margins or convert the project pipeline into consistent profit growth.
Investors may read the adjustment as a reminder that valuation support is more sensitive to macro and rate assumptions than previously reflected in models.

What's in the News

Deutsche Bank cut its price target on Capgemini to €165 from €186 while maintaining a Buy rating on the shares (Periodicals).
Capgemini plans a board meeting on January 5, 2026, to consider the resignation of director Ms. Megan Clarken and the co-option of a new director, Ms. Lila Tretikov, along with other matters (Key Developments).
Capgemini was selected, as part of a consortium with Airbus Protect, PwC, and NVISO, to provide cybersecurity services under the MC17 FREIA Cyber Framework Contract for 71 European institutions over four years, a multi million euro agreement (Key Developments).
Arkestro announced a partnership with Capgemini to support predictive procurement and AI powered autonomous supply chains, with a joint go to market approach aimed at helping clients address unmanaged spend and resource constraints (Key Developments).
Capgemini expanded its work with Siemens to co develop AI native digital solutions for product engineering, manufacturing, and operations, targeting 16 capability areas including efficiency, time to market, quality, and sustainability (Key Developments).

Valuation Changes

Fair Value: The model fair value estimate is unchanged at €171.93, indicating the core valuation anchor remains the same in this update.
Discount Rate: The discount rate is essentially stable, moving from 9.20% to 9.24%, a very small adjustment in the required return used in the model.
Revenue Growth: The revenue growth assumption is unchanged at around 4.94%, signalling no revised view on topline expansion in the forecast period.
Net Profit Margin: The net profit margin assumption remains effectively the same at about 7.91%, suggesting no shift in expected profitability levels.
Future P/E: The future P/E multiple is broadly stable, nudging from 18.76x to 18.78x, which is a minimal tweak rather than a wholesale reset of valuation expectations.

Advanced cloud, AI, and automation leadership position Capgemini for higher-margin contracts and sustained revenue as demand for digital transformation accelerates.
Strategic workforce realignment and investments in digital solutions and acquisitions support improved profitability and earnings growth amid global digitalization trends.
Weak demand, intense competition, restructuring costs, foreign exchange volatility, and macroeconomic uncertainties all threaten Capgemini's revenue growth, margins, and long-term earnings stability.

Catalysts

About Capgemini

Provides consulting, digital transformation, technology, and engineering services primarily in North America, France, the United Kingdom, Ireland, the rest of Europe, the Asia-Pacific, and Latin America.What are the underlying business or industry changes driving this perspective?

Capgemini's expanding leadership and strong deal wins in advanced cloud, data, and artificial intelligence (including Gen AI and Agentic AI) are positioning the company to benefit from the accelerating client demand for digital transformation, supporting a pipeline for higher-value, higher-margin contracts that should drive long-term revenue and margin expansion.
The ongoing transition in clients' business priorities toward cost efficiency and operational optimization-where Capgemini's automation, intelligent operations, and AI-powered business process services are gaining traction-indicates that as discretionary spending recovers, the company is well placed to convert solid bookings (book-to-bill of 1.08) into sustained organic revenue growth.
Capgemini's increased offshore leverage (now at 59%) and the realignment of workforce toward high-growth areas like North America, APAC, and financial services are likely to boost profitability by optimizing delivery costs, which should support improvements in operating margins over time.
The multiyear shift in portfolio mix towards value-added digital, cloud, and data/AI solutions, along with disciplined SG&A management and operational efficiency, is designed to offset near-term gross margin pressures, setting up the group for normalized EPS growth and operating margin resilience as growth returns.
Recent and ongoing investments in strategic frameworks (such as the Resonance AI framework and RAISE platform) and targeted acquisitions (e.g., WNS), aimed at deepening capabilities in high-demand sectors and services, position Capgemini to accelerate earnings growth through both revenue expansion and integration synergies as large-scale digital transformation and automation trends intensify globally.

Capgemini Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Capgemini's revenue will grow by 3.6% annually over the next 3 years.
Analysts assume that profit margins will increase from 7.1% today to 8.2% in 3 years time.
Analysts expect earnings to reach €2.0 billion (and earnings per share of €11.89) by about September 2028, up from €1.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.3 billion in earnings, and the most bearish expecting €1.8 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, up from 13.3x today. This future PE is greater than the current PE for the GB IT industry at 14.5x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.1%, as per the Simply Wall St company report.

Capgemini Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Persistent revenue declines and stagnant growth in key regions such as France and Continental Europe-driven by weak demand in manufacturing, automotive, and consumer goods-risk constraining Capgemini's overall top-line growth, especially given its continued high regional exposure.
Downward pressure on gross and operating margins from intense pricing competition, client expectations for Gen AI-driven cost savings, and large vendor consolidation deals could persist or worsen, impacting long-term profitability and EPS growth.
Higher restructuring costs, driven by shifting demand and workforce reductions in Europe, combined with a rising attrition rate, signal margin headwinds and increased operational risk that could erode net margins over time.
Volatility from FX headwinds, especially Euro strength against the USD and other currencies, and increased tax rates could continue to negatively impact reported revenue, net profit, and free cash flow.
Uncertainty from macroeconomic, geopolitical, and client spend volatility-along with slow recovery in parts of the operations and engineering portfolio-raises risks of delayed revenue inflection and makes sustained long-term earnings growth less certain.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of €175.929 for Capgemini based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €214.0, and the most bearish reporting a price target of just €134.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €24.5 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 9.1%.
Given the current share price of €121.7, the analyst price target of €175.93 is 30.8% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analyst Commentary Signals Mixed Outlook for Capgemini Amid Modest Valuation Adjustments