Citi Downgrades Globant; Stock Trades At High Premium To Peers

In a report issued Sunday, Citi analysts Ashwin Shirvaikar and Ryan Potter downgraded Globant SA GLOB from Buy to Neutral and modestly raised their estimates. Combined with a higher multiple, this led them to boost their price target from $27.00 to $34.00.

Valuation

The analysts remain bullish on the company, but would wait for a better entry point, since the stock currently trades above $30.00.

Moreover, shares are valued at a large premium compared to both its peer group and the market. Globant trades at roughly 35 times Citi’s calendar 2015 earnings estimate, and about 28 times the 2016 estimate, while its competitors trade at around 20 times the 2015 estimate and 16 to 18 times the 2016 estimate.

It should be noted, however, that Shirvaikar and Potter acknowledge that the premium is “well justified based on its market positioning, operating performance and improved liquidity.” Nonetheless, they see no catalysts “for further upward re-rating (…) and so the valuation should act as an upper bound on the shares in the near-term.”

The New Estimates

After revising their model, Citi analysts raised:

• 2015 earnings estimate from $0.93 per share to $0.94 per share
• 2016 estimate from $1.12 per share to $1.15 per share
• 2017 estimate from $1.34 per share to $1.37 per share

Shares of Globant were down more than 6 percent on Monday.