Capgemini Gains Market Share in Stellar First Half, Raising 2022 Outlook; Maintain EUR 190 FVE

Capgemini's second quarter was an outstanding one—substantially beating our top-line expectations by 10% and FactSet consensus by 8%— with help from robust foreign exchange benefits. In constant currency, Capgemini saw robust revenue growth from broad-based strength leading to market share gains. Revenue guidance for the year has been boosted, as a result, while the operating margin outlook remains unchanged. This is a stark contrast from peers who have had to cut guidance—either on the top or bottom line. We believe this is a result of Capgemini's focused new go-to-market strategy prioritizing relationships with a subset of clients to win over incremental transformation projects. We’re maintaining our fair value estimate for the no-moat company at EUR 190 per share—which puts the stock right at the cusp of 3- and 4-star territory. Thus, while Capgemini is moderately undervalued, as the market continues to approach our fair value estimate, we think investors have greater IT services buying opportunities in the market—such as Cognizant, which we believe trades well into 4-star territory (given our $96 fair value estimate).