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On Tuesday, BofA Securities revised its outlook on POSCO (NYSE:PKX) Future M Co Ltd (003670:KS), downgrading the stock from Buy to Neutral and reducing the price target significantly to KRW150,000 from the previous KRW220,000. The adjustment comes in response to a slowing earnings momentum and a demand downturn that the company is currently facing.
The new price target reflects a notable decrease and is based on revised earnings projections for the years 2025-26. BofA Securities has cut its estimated earnings per share (EPS) for POSCO Future M by 40% following a substantial earnings miss in the fourth quarter. This miss has prompted the firm to adjust the valuation multiple for POSCO Future M from 27 times to 23 times, aligning it with historical averages and the average of domestic peers.
According to BofA Securities, the downgrade is driven by a combination of factors. The company is experiencing prolonged losses in its cathode and anode segments. Additionally, there is a strategic shift within the POSCO group towards enhanced vertical integration, particularly concerning upstream metals such as lithium, nickel, and graphite, which are essential components for battery production.
The analyst from BofA Securities highlighted these concerns, stating, "We downgrade POSCO FM (PFM) to Neutral while lowering our PO to W150k from W220k, due to 1) slowing earnings momentum amid ongoing demand slump, and 2) our 40% 2025-26E EPS cut after the large miss in 4Q earnings."
The lowered earnings visibility has led to a more conservative valuation multiple, with the firm now applying a 23 times multiple instead of the previously higher valuation. This change underscores the challenges POSCO Future M is facing in the market and adjusts the investment outlook accordingly.
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