Cancom stock rating upgraded to Buy at Jefferies despite price target cut

Jefferies upgraded German IT services provider Cancom SE (ETR:COK) to Buy, despite a slight price target reduction to EUR29.00, signaling a potential turnaround for the struggling firm. Cancom has faced significant challenges, including five profit warnings since 2022 and a two-thirds market value decline, largely due to cautious IT infrastructure investments from its highly exposed SMB client base. However, Jefferies anticipates improvement in H2 2025, driven by the company's ongoing cost-cutting and restructuring efforts, rebounding public spending, and positive July market sentiment, suggesting the latest guidance revision could mark a turning point.

Analysis

Jefferies has upgraded Cancom SE (ETR:COK) to Buy from Hold, signaling a potential inflection point despite a marginal price target reduction to EUR29.00 from EUR30.00. This upgrade follows a period of severe underperformance for the German IT services provider, which has issued five profit warnings since 2022 and experienced a two-thirds decline in its market capitalization. This poor performance is linked to Cancom's significant exposure to Germany's small and medium-sized business sector, where IT infrastructure investment has been weak due to elevated interest rates and macroeconomic headwinds. In response, Cancom's management has initiated a cost-cutting program targeting EUR12 million in annualized savings and is restructuring operations to enhance operating leverage. Jefferies' rationale for the upgrade hinges on the belief that the latest guidance revision on July 31, 2025, could mark a bottom, with an anticipated recovery in the second half of 2025 fueled by rebounding public spending and positive July exit rate data.

Key Decisions for Investors

• Investors with a higher risk tolerance might consider this a contrarian opportunity, as the upgrade suggests the worst may be priced into the stock, presenting a potential entry point ahead of an anticipated H2 2025 recovery.
• It is critical to monitor leading German economic indicators and Cancom's subsequent earnings reports for confirmation of a rebound in public and SMB IT spending, as Jefferies' thesis is heavily dependent on this cyclical turn.
• Given the simultaneous upgrade and price target cut, this should be viewed as a value-based, turnaround play; investors should evaluate the position based on the successful execution of the EUR12 million cost-cutting program and an improving macroeconomic backdrop, rather than near-term growth momentum.