Capgemini Offers No Moat for Investors

Capgemini is a leading IT services provider and has the greatest concentration of revenue in Europe of the top IT services companies. We think Capgemini does not merit an economic moat, as we believe the company is not able to extract the economic value of its switching costs or intangible assets to the extent of its peers. We think this is partially a result of Capgemini’s lower offshore leverage of its employee base, as well as its concentration in Europe, which we believe has led to weaker business in the past and will lead to a slower recovery for the company after the worst of the coronavirus. While the company will likely struggle amid the COVID-19 pandemic, we think that the company’s stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Capgemini does not miss on substantial growth trends within the IT services industry at large.