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BofA Downgrades Vodafone, Says European Telecom Faces Short-Term Downside

Hannah Genig

Vodafone Group (NASDAQ: VOD) faces many headwinds to warrant a positive rating, according to Bank of America Merrill Lynch. 

The Analyst

Bank of America analyst David Wright downgraded Vodfaone from Buy to Neutral and lowered the price target from $260 to $202.

The Thesis

Vodafone has downside risk from competitive pressures in Spain and Italy, as well as raised spectrum costs, Wright said in the downgrade note. (See the analyst's track record here.) 

BofA expects below-consensus growth, down from at least 9 percent to 1 percent. 

Vodafone's long-term catalysts are more constructive, Wright said.

“We regard the [Liberty Global] deal as strategically sound and [greater than] 10-percent free cash flow accretive by year three [2022]. Meanwhile,there are seeds of recovery in the Netherlands JV," the analyst said. "Activism is another potential positive, albeit unconfirmed, with tower sales as a means to alleviate gearing and potentially a welcome change in cash distribution."

Asset writedowns and dividend cuts are appropriate in light of the company’s overvaluing and over-distributing, Wright said. While this is unlikely, the scenario could be forced if growth slows further ahead of rising leverage and higher-than-average (and unavoidable) capex." 

Price Action

Vodafone shares were trading down more than 3 percent at the time of publication Thursday at $22.28. 

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Photo courtesy of Vodafone. 

Latest Ratings for VOD

Date Firm Action From To
Aug 2018 Bank of America Downgrades Buy Neutral
Jun 2018 Argus Maintains Buy Buy
May 2018 Citigroup Downgrades Buy Neutral

View More Analyst Ratings for VOD
View the Latest Analyst Ratings

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