On Friday, Jefferies made a significant adjustment to its stance on Megaport Ltd. (MP1:AU) (OTC: MGPPF), downgrading the stock from Buy to Hold. The firm also revised the price target for the company's shares, setting it at AUD8.40, a decrease from the previous target of AUD11.10.
The decision to downgrade reflects concerns over the company's earnings outlook. Jefferies noted that despite Megaport's valuation appearing attractive with a 5 times EV/Sales and 20 times EV/EBITDA, the future earnings remain uncertain.
This uncertainty stems from the expectation that operational improvements would materialize by the end of FY25. However, the anticipated turnaround seems to be taking longer than initially thought, with similar growth projections now extending into FY26.
Megaport's continued investment in its business operations was also highlighted as a contributing factor to the downgrade. The company is actively hiring and plans to keep expanding its workforce well into FY26, indicating a sustained period of capital expenditure.
The analyst from Jefferies provided a rationale for the downgrade, stating, "Although valuation looks attractive on 5x EV/Sales and 20x EV/EBITDA, there is still uncertainty with respect to earnings outlook. We had expected operational improvement by the end of FY25, but the turnaround appears to be protracted, with MP1 expecting a similar growth trajectory in FY26. MP1 is also still investing heavily in the business, actively hiring well into FY26."
This revised outlook from Jefferies is a key update for investors and market watchers following Megaport Ltd., as it signals a more cautious view of the company's near-term financial performance.
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