Morgan Stanley on Thursday moved to an underweight stance on Teleperformance - previously rated equal-weight - and lowered its price target to €55 from €61. The new target sits roughly 20% below TP's Nov. 11 closing price of €71.30, reflecting the brokerage's view that automation presents a growing threat to the group's revenue trajectory and profitability.
The bank materially cut its outlook for TP's 2026 organic growth, now guiding a range of -1.5% to -2.5%. Management said that about half of the 300-basis-point downward revision at the midpoint is attributable to declines in Trust & Safety volumes and to automation. Roughly one-quarter of the reduction is linked to increased offshoring, while the balance stems from LanguageLine and softer activity in healthcare.
Operational trends in the third quarter illustrated the point: core services expanded by about 3% when excluding Trust & Safety, but the Trust & Safety unit itself imposed a 400-basis-point drag that left organic growth across core services at -1%. Company management cited a faster-than-expected uptake of automated solutions for basic content moderation among selected hyperscalers as a driver of the slowdown.
Morgan Stanley also highlighted broader signals of labour displacement in the sector. The brokerage noted a 4.1% year-on-year decline in global call-centre headcount in the second quarter, based on Revelio Labs data, with weakness evident in both onshore and offshore markets.
The investment case for meaningful capital returns has shifted under TP's new management priorities. Executives are focusing on reducing leverage, with a net debt target of 1.2 times EBITDA by 2028 - down from around 2.2 times in the first half of 2026. Given that focus, Morgan Stanley sees limited scope for large share repurchases in the near term. The bank expects material buybacks to be unlikely before 2029, when buyback capacity could reach about €615 million, which it notes is roughly 15% of TP's current market capitalisation. Any proceeds arising from a portfolio review, Morgan Stanley said, are likely to be directed mainly at debt reduction.
Management intends to revisit the company's medium-term targets, including the previous organic growth range of 4% to 6%, at a strategic update scheduled for the first half of 2027. Morgan Stanley suggested the firm could adopt a more conservative planning framework given the uncertain trajectory of further automation, though it observed that analyst consensus already sits well below the 4%-6% target.
Reflecting a more challenged outlook, Morgan Stanley lowered its own forecasts for TP's organic expansion to -0.9% in 2027 (from 2.6%) and to 1.0% in 2028 (from 2.7%). The brokerage expects automation to intensify price competition and exert downward pressure on margins. It also trimmed reported earnings-per-share estimates by an average of about 13% across 2026-2028, citing the combined effects of lower revenue, weaker margins and higher restructuring costs.
On valuation, Morgan Stanley noted that TP trades at approximately 5 times forward EV/EBITA, a multiple the bank interprets as reflecting a less attractive risk-reward profile given the heightened uncertainty. A sum-of-the-parts valuation, the brokerage added, points to roughly 26% upside, but it cautioned that the timing and outcome of TP's portfolio review remain uncertain.
Investors should note TP's next scheduled disclosure of fiscal results: the company is due to report its 2026 results on Feb. 25, 2027.
Implications for markets and sectors
- Business services - particularly contact-centre and content-moderation operations - face direct revenue and margin pressure from faster automation adoption.
- Labour markets serving customer-facing roles may see continued headcount contraction, as signalled by the reported quarter-on-quarter declines in call-centre employment.
- Corporate capital-allocation norms could shift, with more proceeds earmarked for deleveraging rather than share buybacks in companies confronting structural disruption.