Legrand's Strategic Position in the Datacenter Growth Wave

The industrial sector is undergoing a seismic shift as artificial intelligence, cloud computing, and 5G infrastructure drive unprecedented demand for datacenter capacity. At the forefront of this transformation is Legrand SA (EPA:LR), a French multinational specializing in electrical and digital infrastructure. Jefferies' recent upgrade of Legrand to a "Buy" rating-with a 2025 price target of €167-underscores the firm's conviction that the stock is undervalued amid surging infrastructure demand, as stated in a Jefferies note. This analysis explores how Legrand's strategic alignment with the datacenter boom, coupled with its financial resilience, positions it as a compelling long-term investment.

Datacenter Dominance: A Catalyst for Growth

Legrand's datacenter segment now accounts for 27% of its total revenue, a figure projected to rise to 36% by 2030, according to Jefferies. This growth is fueled by two key factors: the company's focus on "white space" infrastructure-stable, high-margin components like power distribution units-and its deep ties to hyperscalers, which represent 55% of its datacenter revenue, per Jefferies. Hyperscalers, including cloud giants and AI-driven enterprises, are ramping up capital expenditures to meet the surging demand for computational power. For instance, global hyperscaler spending on datacenters is expected to exceed $100 billion annually by 2027, according to industry forecasts referenced by Jefferies.

Jefferies highlights that Legrand's white-space exposure insulates it from the volatility of traditional industrial markets. Unlike speculative or high-risk segments, white-space infrastructure is characterized by long-term contracts and predictable cash flows. This stability is critical as global interest rates normalize and return-to-office trends boost demand for hybrid workplace infrastructure, further diversifying Legrand's revenue streams, Jefferies argues.

Valuation Metrics: A Case for Undervaluation

Despite these tailwinds, Legrand's stock currently trades at €145, a 15% discount to Jefferies' €167 price target. A closer look at its valuation metrics reveals a compelling case for undervaluation. The company's forward price-to-earnings (P/E) ratio of 25.78 and EV/EBITDA ratio of 19.22 suggest it is trading at a discount to peers in the industrial sector, which typically command higher multiples, Jefferies notes. Additionally, Legrand's PEG ratio of 2.36 indicates that its earnings growth is not fully priced in, even as datacenter revenue is expected to compound at a double-digit rate, per Jefferies.

The bearish forecast of a 2025 stock price drop to $64.45 in the Stockscan forecast appears to underestimate the long-term structural demand for datacenter infrastructure. Short-term macroeconomic volatility, such as interest rate fluctuations, is unlikely to derail the multiyear growth trajectory of hyperscalers. Furthermore, Legrand's aggressive share repurchase program-evidenced by an 80.32% decline in shares outstanding since 2016, according to Jefferies-has bolstered earnings per share and signaled management's confidence in the company's intrinsic value.

Financial Resilience and Strategic Flexibility

Legrand's balance sheet reinforces its ability to capitalize on growth opportunities. With a current ratio of 2.13 and a debt-to-equity ratio of 0.85, the company maintains a conservative leverage profile, enabling it to fund R&D, acquisitions, or further share buybacks without compromising liquidity, Jefferies observes. Its 1.54% dividend yield also provides income-focused investors with a buffer against market fluctuations, as noted by Jefferies.

Conclusion: A Buy for the Long-Term Investor

Jefferies' "Buy" rating is not merely a reaction to near-term momentum but a recognition of Legrand's strategic positioning in a structural growth story. The datacenter segment's projected expansion, combined with the company's financial discipline and stable cash flows, creates a compelling case for undervaluation. While short-term forecasts may fluctuate, the long-term demand for AI-driven infrastructure ensures that Legrand's €167 price target is within reach. For investors seeking exposure to the datacenter revolution, Legrand offers a rare blend of growth potential and risk mitigation.