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UBS downgraded ISS A/S (ISS:DC) (OTC:ISFFF) from Buy to Neutral on Monday, while simultaneously raising its price target to DKK185.00 from DKK175.00.
The downgrade comes despite UBS acknowledging "meaningful strategic progress" at the facility services company in recent years, including margins finally exceeding 5% in fiscal year 2024 and new contract wins that suggest future growth potential.
UBS cited ISS shares rising more than 30% year-to-date as a key factor in the rating change, noting the stock now trades in line with peers at approximately 10 times EV/EBITA, creating what the firm described as a "more balanced" risk/reward profile.
The firm updated its model for recent trading activity and incorporated a significant ongoing share buyback program, resulting in adjusted earnings per share estimates increasing by 5-17% for fiscal years 2025-2027, while leverage is expected to remain at approximately 2.0x.
UBS also mentioned potential future catalysts for ISS, including the outcome of an arbitration case with Deutsche Telekom (OTC:DTEGY) and the possibility of positive inflection in "net new" contract wins, though these factors were insufficient to maintain the previous Buy rating.
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