Recruit Holdings: Initiating Coverage With Fair Value of JPY 6,500 per Share and Narrow Moat Rating

We initiate coverage on Recruit Holdings with a JPY 6,500 per share fair value estimate. We believe Recruit has a narrow economic moat, primarily based on network effects. We forecast revenue to grow at a 10-year compound annual growth rate of 4%, primarily driven by 6% growth in its HR technology segment. We expect EBIT margins to expand to 18% by fiscal 2032 from 12% in fiscal 2022. We assign Recruit a Morningstar Uncertainty Rating of High and rate its capital allocation as Exemplary. We use a weighted average cost of capital, or WACC, of 8%. At current prices, Recruit shares screen as fairly valued.