Jefferies upgrades Seek stock rating to Buy on margin expansion outlook

Jefferies upgraded Seek Ltd (ASX:SEK) from Hold to Buy, raising its price target to AUD32.00 from AUD24.60. This positive revision is predicated on anticipated margin expansion in the second half of fiscal year 2025, Seek's commitment to operating leverage, and strong yield growth despite volume declines, further supported by a stabilizing macroeconomic environment. Jefferies views Seek's valuation as reasonable, trading at 38 times price-to-earnings (excluding SGF) with projected earnings per share growth of 20-25%, signaling a robust outlook for the employment marketplace.

Analysis

Jefferies has upgraded Seek Ltd (ASX:SEK) to a 'Buy' rating from 'Hold', concurrently raising its price target by over 30% to AUD32.00 from AUD24.60. The upgrade is predicated on a forecast for margin expansion in the second half of fiscal year 2025, supported by the company's stated commitment to achieving operating leverage. Notably, Seek has demonstrated strong yield growth, a key indicator of pricing power, despite experiencing significant declines in volumes and introducing freemium models in its Asian markets. This resilience, combined with a stabilizing macroeconomic backdrop, underpins the positive revision. Jefferies considers the company's valuation to be reasonable, with the stock trading at a 38x price-to-earnings multiple (excluding the Seek Growth Fund) in the context of a projected 20-25% growth in earnings per share.

Key Decisions for Investors

• Given the 'Buy' rating and significant price target increase from Jefferies, investors may view this as a positive catalyst, warranting a review of existing positions or consideration for initiating a new one in Seek Ltd.
• Investors should monitor upcoming earnings reports for confirmation of the forecasted H2 FY2025 margin expansion and continued yield strength, as these are the primary drivers of the analyst's upgraded thesis.
• While the growth outlook is strong, the 38x P/E valuation is predicated on achieving the projected 20-25% EPS growth, so any deceleration in earnings could introduce significant downside risk to the stock.