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On Wednesday, BofA Securities adjusted its stance on SK Telecom (017670:KS) (NYSE: NYSE:SKM), downgrading the stock from Buy to Neutral and reducing the price target from KRW71,000 to KRW61,000. The revision comes as the firm anticipates a decrease in projected earnings for the years 2025 to 2027, averaging a 7% drop. This outlook is partly due to revised estimates for subscriber net additions and market shares within the Korean telecom sector, where SK Telecom is expected to see a 1 percentage point decline. Currently trading at $21.79, near its 52-week low, the stock maintains a modest P/E ratio of 9.31. According to InvestingPro analysis, SK Telecom appears undervalued based on its Fair Value metrics.
The downgrade also factors in the potential financial impact of a recent data breach, which is anticipated to result in heightened costs. BofA Securities believes that the company’s earnings improvement during the period of 2025 to 2027 will likely be lower than previously expected. Additionally, the firm foresees limited potential for increased returns to shareholders. Despite these concerns, InvestingPro data shows SK Telecom maintains a strong financial health score of 2.84 (GOOD), with robust profitability metrics.
The report further highlights that any potential for SK Telecom’s stock to rebound is contingent upon the company achieving sustainable earnings growth and providing clarity on the enhancement of shareholder returns. The current estimates for dividend per share (DPS) stand at KRW3,540, remaining unchanged year-over-year, which is attributed to flat earnings per share growth projections for 2025 and the company’s focus on reducing debt, investing in artificial intelligence, and acquiring equity in SK Broadband (24.8%). Notably, SK Telecom has maintained dividend payments for 33 consecutive years, currently offering a substantial 5.97% yield. For deeper insights into SK Telecom’s valuation and financial metrics, access the comprehensive Pro Research Report available on InvestingPro.
In light of these factors, BofA Securities’ revised price target reflects a more conservative view of SK Telecom’s future financial performance. The firm’s neutral rating indicates a belief that the stock may not offer significant upside potential in the near term, given the challenges and strategic decisions that the company faces. However, with a strong financial health score and consistent dividend history, SK Telecom remains a prominent player in the Wireless Telecommunication Services industry.
In other recent news, SK Telecom has been in the spotlight following several key developments. The company disclosed a significant customer data breach caused by a cyberattack earlier this month, describing it as a large-scale data leak triggered by malware. In response, SK Telecom has committed to taking full responsibility for any resulting damages. Additionally, Goldman Sachs has downgraded SK Telecom’s stock rating from Buy to Neutral, lowering the price target to KRW57,000. This change reflects concerns over the telecommunications industry’s profitability and SK Telecom’s investment in artificial intelligence, which Goldman Sachs analysts believe might limit shareholder returns.
On a different note, UBS initiated coverage of SK Telecom with a Buy rating and a price target of KRW65,000, projecting a compound annual growth rate of 6.5% in operating profit from 2024 to 2026. UBS is optimistic about SK Telecom’s expansion in the data center and cloud business, expecting a 19% growth in this area. The firm also highlights the potential for reduced costs and increased dividends, predicting a 20% annual growth in dividends per share. UBS analysts are particularly positive about SK Telecom’s dual AI strategy, which includes consumer-focused AI solutions and services for business clients. Despite potential regulatory risks, UBS maintains a positive outlook on the company’s financial health and growth prospects.
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