On Monday, CommScope Holding (NASDAQ:COMM) stock faced a downgrade from JPMorgan, moving from a Neutral to an Underweight rating. The investment firm highlighted the company's challenging start to 2024, projecting a significant year-over-year decline in revenue and EBITDA for the full year. This expected downturn includes what could potentially be the lowest EBITDA since the acquisition of Arris.
JPMorgan's analysis anticipates a nearly 50% reduction in Core EBITDA for the first quarter of 2024, setting it between $100 million and $125 million. This figure falls short of previously lowered expectations.
Despite the forecast of some improvement throughout the year, driven by better demand in CCS and ANS segments due to DOCSIS 4.0 implementation, the firm still projects a roughly 34% decrease in EBITDA year-over-year, with an updated estimate of $678 million compared to the prior forecast of approximately $1.1 billion.
The investment firm also expressed concerns about the cash flow implications of the lower EBITDA, suggesting CommScope may experience a cash outflow in 2024. The company is expected to utilize its available liquidity of $1.2 billion and navigate its debt agreements to manage the notes due in 2025. JPMorgan noted the potential for growth in 2025 but cautioned that even robust revenue growth may not bring EBITDA back to the levels seen in 2023.
The downgrade reflects JPMorgan's view that CommScope is one of the most fundamentally challenged companies within its coverage universe, particularly given the potential one-third reduction in EBITDA year-over-year. Despite acknowledging the possibility of upside from asset sales or a macroeconomic rebound, the firm sees limited catalysts for a sharp demand recovery before 2025, leading to a low preference for recommending CommScope shares to investors at this time.
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