On Wednesday, Canaccord Genuity announced a downgrade of TTEC Holdings Inc. (NASDAQ: NASDAQ:TTEC) from Buy to Hold, alongside a significant reduction in the price target to $13 from the previous $30. The firm cited a combination of factors impacting the business process outsourcing service provider, despite acknowledging the company's accomplishments in the past year.
TTEC Holdings Inc. was recognized for its achievements in 2023, which included expanding its global service delivery footprint, optimizing its cost structure, and enhancing its service offerings within the Engage and Digital segments. The company also experienced volume gains due to industry consolidation, and its Digital segment, excluding the Cisco (NASDAQ:CSCO) practice, saw nearly a 10% growth. Furthermore, TTEC recorded a record number of Digital bookings in the fourth quarter of 2023, driven by demand for cloud-based customer care solutions integrated with AI.
However, the current economic climate presents challenges for TTEC. The analyst noted that clients are hesitant to commit to service volume levels for more than a month or two, leading to reduced visibility for the company. Additionally, a major customer is scaling back operations, which is expected to create approximately a 4% headwind to TTEC's revenue in 2024. This customer will continue to use TTEC's services for other aspects of its business.
The persistent high-interest rates are maintaining TTEC's significant burden of interest costs. With no clear indication of interest rate reductions in the near future, the company is reallocating its cash flow, prioritizing debt repayment over dividends.
The combination of these factors led to the decision to downgrade TTEC's stock. Although the valuation appears attractive, Canaccord Genuity believes the stock will not see significant movement until there is an observable improvement in macroeconomic conditions and enterprise spending. The new price target of $13 is based on 6.1 times Canaccord Genuity's 2025 EV/EBITDA estimate for TTEC.
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