On Thursday, HSBC analysts downgraded Wise (LON:WISEa) plc (WISE:LN) (OTC: WPLCF) stock from 'Buy' to 'Hold', while increasing the price target from GBP10.00 to GBP11.50. The revision reflects higher estimates and a reduced weighted average cost of capital (WACC) in their discounted cash flow (DCF) model, now at 7.5% down from 8.0%.
The analysts at HSBC acknowledged the robustness of Wise's business model but expressed concerns that the stock's recent performance might overestimate the short- to mid-term benefits of new Tier 1 bank contracts on the company's profit and loss statement. They noted that in December 2024, Wise's shares appreciated by 21% compared to the FTSE's 2% gain.
The analysts also pointed to the potential long-term challenges for Wise, stemming from its mission-zero price strategy. This approach, which involves regularly lowering prices, could theoretically limit the company's revenue and profit growth. HSBC believes that despite their estimates being significantly higher than the Visible Alpha consensus, the current valuation of Wise's shares is stretched.
The update from HSBC comes after a period of significant share price increase for Wise, which has outperformed the broader market index. The analysts' revised price target of 1,150 pence represents an adjustment to their valuation model, taking into account the company's recent financial performance and market conditions.
Wise plc, known for its international money transfer services, has been focusing on expanding its customer base and securing new banking partnerships. The company's strategy and performance will continue to be monitored by investors as they assess the impact of HSBC's new rating and price target on the stock's movement in the market.
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