Investing.com -- J.P. Morgan has downgraded Vodafone (LON:VOD) to “underweight” from “neutral,” warning that structural funding shortfalls and macroeconomic pressures are likely to weigh on the telecom company’s outlook.
The brokerage also placed Vodafone on its Negative Catalyst Watch ahead of the group’s full-year results.
The downgrade reflects a broader reassessment by J.P. Morgan of Vodafone’s position within the European telecom sector, which has otherwise shown signs of recovery.
While the sector has outperformed in 2025 so far, Vodafone has lagged, delivering only a 6% total return year to date.
That contrasts with a 13% sector average and gains of more than 30% from names like Orange and Telecom Italia (BIT:TLIT).
J.P. Morgan analysts said Vodafone’s underperformance stems in part from an uncertain business outlook in Germany, the company’s largest market.
They also pointed to its 30% EBITDA exposure to Africa, a region facing heightened foreign exchange volatility and broader economic challenges.
The brokerage estimated that currency headwinds alone will reduce Vodafone’s 2025 revenue and EBITDA by about 3%, making it one of the most affected companies in its coverage.
“Funding short to our bullish sector stance,” the analysts said in its note. It cited concerns about shareholder returns that are not fully backed by free cash flow.
Vodafone’s shareholder return coverage ratio stands at 1.3 times, meaning its distributions exceed the cash it generates.
The company’s leverage also stands out, with net debt equal to 2.6 times EBITDA, a level that could limit its ability to respond to market shifts or invest strategically.
J.P. Morgan noted that while other telcos are benefiting from favorable regulatory changes and easing capex trends, Vodafone remains constrained by its balance sheet and uneven regional performance.
The downgrade comes at a time when the bank has turned more constructive on several peers, including Orange, KPN, Cellnex and Deutsche Telekom (OTC:DTEGY), which it rates “overweight.”
Analysts said Vodafone’s valuation no longer compensates for the risks. They cut the stock’s price target to 62 pence, down from 72 pence, implying a potential downside of 14% from current levels.
The brokerage emphasized that its concerns about Vodafone extend beyond short-term performance and reflect broader doubts about its long-term funding resilience and competitive positioning across key markets.