On Monday, Atos SE (ATO:FP) (OTC: AEXAY) faced a downgrade in its stock rating from Hold to Sell by CFRA, accompanied by a significant reduction in its price target from EUR6.00 to EUR1.80. This decision reflects the firm's concerns regarding the company's future performance in light of increasing economic challenges.
The downgrade is based on a pessimistic view of Atos's prospects, as the company grapples with a tough macroeconomic environment. The new price target is set at EUR1.80, which is substantially lower than the previous EUR6.00, and is based on a forward P/E ratio of 0.82x for the year 2024. This is a stark contrast to the company's five-year average forward P/E of 7.30x. CFRA justifies this downward revision due to Atos's shrinking EBIT margin.
Atos's financial performance in 2023 was marked by a significant net loss of EUR3.4 billion, primarily due to impairments of goodwill and other non-current assets. The company also recorded a negative free cash flow of EUR1.1 billion, a considerable increase from the previous year. The firm's net debt escalated to EUR2.2 billion, with the net debt/EBITDA ratio worsening to 3.8x from 2.5x.
The analyst from CFRA has also expressed apprehension about Atos's ability to manage its debt, highlighting the challenge the company faces in repaying EUR3.7 billion before the end of 2025. Additionally, the firm has experienced several changes in its leadership, leading to questions about the stability of its leadership and the effectiveness of its strategic planning.
In light of these factors, CFRA has also adjusted its earnings per share (EPS) estimates for Atos. The EPS forecast for 2024 has been lowered from EUR2.50 to EUR2.20, and an EPS of EUR2.50 has been set for the year 2025. These revisions come as Atos navigates through its financial and strategic challenges.
InvestingPro Insights
As Atos SE faces a downgrade and challenging financial conditions, InvestingPro data provides further context to the company's current situation. The company's market capitalization stands at a modest $227.24 million, and it exhibits a negative P/E ratio of -0.38 for the last twelve months as of Q4 2023, underscoring the lack of profitability in the recent period. Additionally, the revenue for the same period was $11.81 billion, with a decline of 5.71%, indicating shrinking top-line results in a difficult macroeconomic environment.
InvestingPro Tips highlight that Atos operates with a significant debt burden and may have difficulty making interest payments, which aligns with CFRA's concerns. The company's stock also generally trades with high price volatility, suggesting a potential risk for investors seeking stability. On a more positive note, analysts predict the company will be profitable this year, offering a glimmer of hope for future financial health.
For those considering a deeper analysis, InvestingPro offers additional insights and metrics on Atos SE, which could provide a more comprehensive understanding of the company's financial position and market performance. Readers can unlock these insights and benefit from an exclusive offer by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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