Jefferies upgrades Compass, sees recent weakness as buying opportunity

20th Aug 2015 11:01

(ShareCast News) - Jefferies upgraded Compass Group to 'buy' from 'hold' and lifted the price target to 1,200p from 1,100p.It said the recent 15% pullback in the shares provides an opportunity to become more positive.It noted that Compass shares have dropped 15% since their April peak as the market continues to worry about weakness in its commodity and energy related businesses, which account for around 15% of group revenue.Jefferies recently reduced its earnings per share forecasts by around 3% due to this weakness but said it's likely to be temporary and will be limited by Compass's geographic, industry and customer diversity.It added that the underlying business model continues to perform consistently well."The trend to outsourcing continues and we expect Compass to achieve organic sales growth of around5% with around 10 basis points of underlying margin improvement through 2017. Together with the continuing share buyback programme and progressive dividend policy, this results in total returns comfortably into double-digits," said Jefferies.It said other trading remains strong and continues to forecast North American sales growth of 7.5% this year and 6% in 2016/17. In Europe and Japan, Jefferies expects organic sales growth to get close to 2%.At 1108 BST, Compass shares were up 0.6% at 1,033p