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On Tuesday, Stifel analysts revised their outlook on u-blox AG (UBXN:SW) stock, upgrading it from Hold to Buy and significantly increasing the price target to CHF100.00 from the previous CHF67.00. The adjustment reflects Stifel’s view that the market has yet to fully appreciate u-blox’s transition from a company consuming cash to one that generates it robustly.
Analysts at Stifel highlighted the company’s strategic move away from its unprofitable cellular business, which they expect will eliminate around CHF 20 million in cash burn. This step is seen as a key factor in improving the company’s financial health. Alongside this, a reduction in research and development capitalization to low-single-digit millions by 2025 and the company’s fabless business model, which requires minimal tangible capital expenditures, are anticipated to reduce cash outflows from capital expenditures by 75% in 2025.
Despite some anticipated cash outflow due to restructuring in 2025, Stifel forecasts a free cash flow (FCF) of CHF 48 million for u-blox in 2026. This projection leads to an attractive 9% FCF yield for the company’s shares. The analysts believe that this strong cash generation capability will gradually alter investor sentiment over the next 12 months.
The upgrade comes as Stifel analysts expect the change in free cash flow and investor sentiment to significantly change within the upcoming year. Their positive stance on the stock is rooted in the belief that the company’s financial metrics will demonstrate a marked improvement, which has not yet been fully recognized by the investment community.
In summary, Stifel’s upgraded rating and raised price target for u-blox AG are based on the firm’s expectation of a significant turnaround in the company’s cash flow dynamics and investor perceptions, driven by strategic business model adjustments and reduced capital expenditure.
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