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On Wednesday, BofA Securities adjusted its stance on Tele2 (ST:TEL2b) AB (TEL2B:SS) (OTC: TLTZY) stock, shifting the rating from Buy to Neutral. The firm also revised the price target to SEK102.00, a slight decrease from the previous SEK104.00. This move comes after a period of strong performance by the telecommunications company.
The analyst at BofA Securities provided a rationale for this decision, citing the completion of Iliad's stake acquisition from Kinnevik as a significant factor. This transaction had previously cast uncertainty over Tele2's stock, and its resolution has seemingly played a role in the analyst's reassessment.
Despite the downgrade, the new price target suggests a relatively stable outlook for Tele2's shares. The analyst's remarks pointed to the company's year-to-date performance, which has been the most robust among the covered telecommunications stocks. However, the potential for near-term free cash flow (FCF) growth appears to be limited.
The forecast for Tele2's dividend yield is also a consideration, with expectations of a 6-7% yield by 2025. This projection may indicate that Tele2's stock is nearing what BofA Securities considers its fair value, which typically means that the stock is priced appropriately given its earnings prospects and other investment metrics.
In terms of earnings estimates, the analyst's views are mixed in comparison to the consensus, noting some potential downside in the Swedish market. This suggests that while some financial metrics might align with general expectations, others could fall short, contributing to the decision to downgrade the stock to Neutral.
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