On Thursday, Bernstein SocGen Group revised its rating on Orange SA (OTC:ORANY) (ORA:FP) (NYSE: ORAN), downgrading the telecommunications company from Outperform to Market Perform and reducing the price target to EUR 11.00 from EUR 13.00. The adjustment reflects a cautious stance on the company's domestic revenue growth and the potential risks in its emerging market operations. The $30.2 billion market cap telecom giant, known for its low volatility with a beta of 0.19, has maintained an impressive track record of dividend payments for 21 consecutive years, currently offering a 4.92% yield. According to InvestingPro, the company shows strong fundamentals with a Piotroski Score of 8.
The firm's analysis indicates that while Orange has seen an increase in the uptake of convergent services and upgrades to fibre and 5G, this growth is largely offset by a decline in wholesale revenues and a structural downturn in the PSTN business. While the company achieved 7.42% revenue growth in the last twelve months, InvestingPro analysis reveals analysts anticipate a sales decline in the current year. Consequently, Bernstein projects domestic revenue growth to be lackluster, with an expected compound annual growth rate (CAGR) of EBITDA AL around zero from 2024 to 2025.
Despite the positive trend in Orange's emerging market (EM) operations, the low valuation multiples at which African telecom companies trade reflect the political and macroeconomic risks in the region. Bernstein acknowledges Orange's commitment to infrastructure ownership, which supports long-term margin protection. However, there are concerns that this strategy may be compromised in Spain and that the company's goal to gain control of MasOrange could impact its financial leverage and cash distribution capabilities.
The report also notes that Orange's valuation appears attractive, with an enterprise value to operating free cash flow (EV/OpFCF) multiple of 10.9x and an equity free cash flow (EqFCF) yield of 9.3% projected for 2025. The stock currently trades at a P/E ratio of 12.35x, which InvestingPro analysis suggests is low relative to near-term earnings growth. Nonetheless, after accounting for the discount applied to EM operations, Bernstein estimates that Orange is trading at higher multiples compared to Deutsche Telekom (OTC:DTEGY)'s (DT's) Stub, while offering a less promising growth outlook. This assessment has led to the revised stock rating and price target for Orange SA. Unlock 8 additional InvestingPro Tips and comprehensive valuation metrics to make more informed investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.