J.P. Morgan placed Legrand on a positive catalyst watch in a note released Tuesday as the electrical products group prepares to report fourth-quarter results on Feb. 12. The move coincided with a rise in Legrand shares following the brokerage's commentary.
The bank maintained an "overweight" stance on Legrand and held its price target at c165.00, compared with the stock's closing price of c128.60 on Jan. 26. J.P. Morgan estimates roughly 3.5% upside to current fourth-quarter consensus figures and described the stock's valuation as discounted versus peers.
J.P. Morgan said the c165.00 target implies about 30% upside from the late-January close and is founded on the company's fundamental appeal across a multi-year horizon. The brokerage also identified a shorter-term trading opportunity into the upcoming earnings release.
A central element of J.P. Morgan's view is Legrand's exposure to data centers, which the bank notes represent about 25% of group revenue. The firm expects data-center demand to account for nearly all group-level growth in fiscal 2025 and to have made more than a 100% contribution to growth at times during fiscal 2024 - a dynamic that has offset weakness elsewhere in the business.
J.P. Morgan attributed the uneven growth profile to headwinds in U.S. office and European residential markets. The brokerage anticipates a broader recovery beginning in fiscal 2026, likely starting in the second or third quarter, driven by persistent data-center activity, a probable rebound in European residential, and sequential improvement in the U.S. core office segment.
The analysts highlighted that Legrand has sustained best-in-class operating and free cash flow margins relative to peers despite these cyclical headwinds. They said the share has lagged peers historically because of lower growth, but that organic sales growth rates are converging with peers while valuation remains below historical averages and more than one standard deviation below comparable electrical peers.
J.P. Morgan noted recent downward revisions to sell-side expectations and even lower buy-side forecasts. The bank said it is generally understood that Legrand is unlikely to guide at or above a 6.2% organic sales growth consensus for fiscal 2026 when reporting fourth-quarter results, with investor expectations instead clustering in a roughly 4% to 6% range.
That dynamic has positioned Legrand as a potential funding short, according to J.P. Morgan, since consensus forecasts are likely to move lower initially. But the brokerage flagged short interest of about 7% as evidence that the short trade may have become crowded, which it says improves the risk-reward profile into the earnings event by raising the potential impact of short covering.
On fourth-quarter metrics, J.P. Morgan cited company consensus figures published on Jan. 16 showing organic sales growth of 4.2%, versus J.P. Morgan's own estimate of 7.8%. The brokerage said this variance reflects the company's guidance pointing toward roughly 4% growth for the quarter, a level J.P. Morgan views as unduly conservative.
J.P. Morgan's reasoning for a higher Q4 estimate includes about 3% pricing, mid-teens growth in data centers, and a broadly stable remainder of the business. For fiscal 2026 overall, the bank said it is broadly aligned with consensus expectations of about 6.2% organic sales growth and operating margins near 21%.
Importantly, J.P. Morgan sees greater upside than downside risk to those fiscal 2026 assumptions as data on European residential and U.S. office markets evolve - developments the brokerage believes should underpin a stronger second half of the year.
Summary
J.P. Morgan has placed Legrand on a positive catalyst watch ahead of the company's Q4 results due Feb. 12. The bank retains an overweight rating and a c165 price target, citing upside to Q4 consensus, strong data-center exposure that accounts for roughly 25% of revenue, a valuation discount versus peers, and about 7% short interest that could amplify any upside through short covering.
Key points
- Brokerage stance - J.P. Morgan reiterates an overweight rating and a c165 price target, implying roughly 30% potential upside from the Jan. 26 close of c128.60.
- Data-center contribution - Data centers represent about 25% of Legrand's revenue and are expected to drive most or all group-level growth in certain recent fiscal periods.
- Market dynamics - Valuation appears discounted versus peers while short interest near 7% could magnify price moves into the Feb. 12 earnings report.
Risks and uncertainties
- Guidance and expectations - The brokerage notes a gap between consensus and what investors expect management to guide, with consensus near a 6.2% organic sales growth figure for fiscal 2026 but investor clustering around 4% to 6% - an uncertainty for near-term stock direction.
- Market headwinds - Continued weakness in U.S. office and European residential markets could constrain group-wide growth and press margins despite data-center strength.
- Consensus revisions - J.P. Morgan highlights that sell-side expectations have recently declined and buy-side projections appear even lower, which could create volatility if forecasts move further.
Note: This report summarizes the brokerage view as presented in J.P. Morgan's published note and reflects only the information and figures cited therein.