On Thursday, JPMorgan assumed coverage on Gogo Inc (NASDAQ:GOGO), an in-flight internet company, assigning a Neutral rating and adjusting the price target for the stock to $11 from the previous $15. The new price target is set in light of a softer 2024 guidance and expected challenges related to the launch of new products and services.
Gogo's fourth-quarter 2023 earnings surpassed JPMorgan's estimates with higher revenue, EBITDA, and free cash flow (FCF), but the company's outlook for 2024 raised concerns due to anticipated slower shipments, delays in the 5G launch, and a shift to the Galileo product mix. The company also faces increased costs associated with the introduction of 5G and Galileo services.
Despite these challenges, management's commentary suggested that the fundamental demand drivers in the industry remain strong. The introduction of the Galileo product in the second half of 2024 is expected to increase Gogo's total addressable market by approximately 60%. The product is competitive with its peers, which supports the company's long-term market penetration goals.
However, JPMorgan has revised its 2024 adjusted EBITDA prediction for Gogo to $119 million, a 15% decrease from the previous forecast of $140 million. The firm anticipates that investors will look for an upturn in key performance indicators and financial results in the latter half of 2024, following the execution of product launches.
The report concluded that while Gogo projects a significant increase in free cash flow by fiscal year 2025, investor sentiment may remain cautious until tangible improvements are observed later in the year. The revised price target of $11 is based on an EBITDA multiple of 11.1 times the firm's fiscal year 2025 estimates and a free cash flow yield of approximately 12%, compared to the stock's current trading at 8.8 times EBITDA with a free cash flow yield of around 16%.
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