Morgan Stanley downgrades Carrefour stock rating on French unrest impact

Morgan Stanley has lowered its rating on Carrefour SA, a French retail giant, to Equalweight from Overweight due to the impact of social unrest in the country. The downgrade comes after Carrefour issued a profit warning indicating a 7% decline in French earnings before interest, tax, depreciation, and amortization (EBIT) to 17%, and a 3% drop to 9% in Group EBIT, primarily attributed to the unrest.

The firm predicts a financial EBIT impact of EUR80 million to EUR200 million from the unrest, affecting about 50 stores, or 1% of Carrefour's French store base. The unrest has led to increased consumer uncertainty, resulting in lower customer footfall, shorter store hours due to curfews, precautionary closures, and access difficulties.

This has led to a 12% cut in Morgan Stanley's earnings guidance for Carrefour in 2026, with an estimated 30% drop in Q4 compared to the previous year. The analyst's price target has been revised downward to EUR18.35, reflecting the reduced earnings estimates and a lower price-to-earnings ratio of 9.5 times. Despite the downgrade, Carrefour remains an undervalued stock according to Morgan Stanley's analysis, and the company has a strong track record of dividend increases.