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On Tuesday, Barclays (LON:BARC) analyst Mathieu Robilliard downgraded Liberty LiLAC (NASDAQ:LILA) stock rating from Equalweight to Underweight and lowered the price target from $8.00 to $6.50. The revision comes as Liberty LiLAC faces persistent challenges in Puerto Rico, which have significantly impacted the company’s performance, with the stock declining over 25% in the past six months. According to InvestingPro data, the company maintains impressive gross profit margins of 77.8%, though it currently trades near its Fair Value.
Robilliard pointed out that Liberty LiLAC’s adjusted OIBDA (Operating Income Before Depreciation and Amortization) decreased by 7% year-over-year on a rebased scale in 2024. Consequently, the company’s leverage increased to 4.5 times, according to Liberty LiLAC’s definition, by the end of 2024. InvestingPro analysis reveals an even more concerning debt-to-equity ratio of 7.73x, significantly higher than regional peers. Get access to more detailed financial health metrics and 8 additional ProTips with an InvestingPro subscription.
The analyst expressed concerns over Liberty LiLAC’s high leverage strategy, especially given the economic, climatic, and political volatility in the region. While the firm anticipates an increase in free cash flow (FCF) for 2025, Robilliard cautioned that part of this growth is expected due to reduced capital expenditures, which may not be sustainable in the long run. InvestingPro data shows a current FCF yield of 16%, though the company remains unprofitable with a loss of $3.31 per share over the last twelve months. Additionally, the analyst believes that reducing leverage to more acceptable levels could take a considerable amount of time.
Barclays has adjusted its estimates, now forecasting approximately 2% compound annual growth rate (CAGR) in adjusted OIBDA from 2023 to 2026, which falls short of the company’s guidance of mid to high single-digit growth. Despite the lower capital expenditure estimates, Barclays expects Liberty LiLAC to generate free cash flow consistent with the company’s guidance, around $1 billion, during this period. For comprehensive analysis including detailed financial health scores and valuation metrics, explore the full Liberty LiLAC Pro Research Report, available exclusively on InvestingPro.
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