Eurofins Scientific stock collapses as short seller attacks

Investing.com – Shares of Eurofins Scientific SE (EPA:EUFI) have plummeted nearly 20% Monday, marking by far the steepest decline among the CAC 40 index stocks.

The stock hit a low of 39.51 euros, a level not seen since March 2020.

The reason for this plunge is a damning report from the US fund Muddy Waters, which specializes in short selling. The report claims that Eurofins has employed an excessively complex corporate structure optimized for malfeasance.

The main issues highlighted in the report include related-party transactions involving real estate, complex accounting practices, including confusing cash disclosures, weak internal controls and governance, and questionable mergers and acquisitions.

However, in a note published Monday in response to Eurofins Scientific's plunge, analysts at Jefferies reminded that a similarly aggressive report covering the same themes was published in 2019 by another short-selling specialist. This context suggests today's revelations might be less impactful, as the 2019 report did not result in any scandal.

Nevertheless, Jefferies has maintained its "underperform" rating for the stock, but this is mainly due to a lack of confidence in the company's free cash flow (FCF) generation prospects, and their view of less attractive growth and margin prospects compared to larger peers.

Finally, it should be noted that Jefferies has also reaffirmed its price target of 48 euros for Eurofins Scientific's stock, which is 9% lower than last Friday's close, but 12% higher than the stock price at the time of writing, given the steep decline since the Paris Stock Exchange opened.

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