On Wednesday, JPMorgan (NYSE:JPM) analysts downgraded Vodafone Group PLC (LON:VOD:LN) (NASDAQ:VOD) stock from Neutral to Underweight and reduced the price target from GBP0.62 to GBP0.72. The revision reflects concerns over the company’s near-term free cash flow (EFCF) and the potential impact of its 3UK merger, along with competitive challenges in the German market.
The analysts highlighted several reasons for the downgrade, including forecasts that are below consensus for the fiscal year ending March 2026, with expectations of a 2% decrease in revenues, a 3% decrease in EBITDAaL, a 7% decrease in EPS, and a significant 19% decrease in all-in EFCF. They pointed out that even before considering the merger with 3UK, there are substantial cuts to Vodafone’s near-term EFCF due to increased capital expenditures, spectrum costs, and restructuring efforts.
The report also expressed concerns about the need for Vodafone to adjust its mobile pricing strategy in Germany and the risk posed by a potential partnership between Telefonica (NYSE:TEF) and 1&1, which could threaten Vodafone’s lucrative wholesale revenues. Despite recognizing that Vodafone has valuable assets that could be unlocked in the medium term, such as Vantage, India, AST SpaceMobile, and the Zegona payment, along with synergies from the UK merger, the analysts believe the market needs to process the current downgrades and see evidence of a structural turnaround before these factors can be appreciated.
The analysts concluded that due to these challenges, they expect Vodafone stock to underperform compared to the broader sector, which is likely to continue to re-rate. The lowered price target of GBP0.62 reflects these concerns and the anticipated modest 6% yield of the projected Mar-26E EFCF, which stands at just €1.2 billion.
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