On Monday, JPMorgan (NYSE:JPM) downgraded Consensus Cloud Solution Inc. (NASDAQ:CCSI) stock from Neutral to Underweight, although it raised the price target to $21.00 from $19.00. The adjustment reflects the firm's strategy to rebalance its ratings.
Despite acknowledging Consensus Cloud's strong margins and cash flow, JPMorgan cited the company's lower growth profile compared to its peers and structural challenges that may hinder its ability to accelerate growth in the near future.
Consensus Cloud has experienced slower growth following its 2021 spinoff from J2 Global (NASDAQ:ZD), missing its revenue growth target of 5-9%. The company has forecasted a 5% decline in revenue for FY24, attributing the downturn to ongoing macroeconomic weakness and customers' heightened focus on cost management.
The firm has particularly noted extended sales cycles over the past two years within its significant Healthcare customer base, which traditionally represents about 70% of its new Corporate sales.
On the earnings front, JPMorgan projects limited EBITDA growth for Consensus Cloud, estimating low single-digit growth in its model. For FY25, the company is expected to see approximately 1% year-over-year growth, which is substantially below the average growth rate of 8% for the analyst's coverage group. EBITDA growth is anticipated to be flat for FY25, in stark contrast to the group's average of 23%.
JPMorgan's revised price target of $21 is based on a 5x multiple of its 2026 EBITDA estimate, which is at the lower end of Consensus Cloud's long-term mid-single-digit EBITDA growth target.
This price target implies a roughly 7% downside from the current stock price, whereas the average stock in the group is expected to see a 16% upside. The new price target reflects the company's near-term challenges despite its potential in AI and interoperability solutions.
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