Morgan Stanley has downgraded the Finnish telecom company Elisa. It moved the rating from overweight to equal weight. It also lowered the price target from fifty eight euros to forty three euros. The bank says Elisa’s growth outlook for the next year looks weaker than before.
The biggest concern is slower growth in mobile service revenue. Elisa used to grow at a steady mid single digit pace from twenty twenty one to twenty twenty four. Now Morgan Stanley thinks this revenue will rise only about three percent in twenty twenty five. Elisa’s latest quarterly results showed mobile service revenue up three point three percent to two hundred sixty three million euros. But this is still slower than past years.
Another major worry is customer churn. More people are leaving Elisa than before. The post paid churn rate jumped to twenty two point three percent in the third quarter. That is about six percentage points higher than a year ago. Morgan Stanley believes this is not just a temporary problem. It expects churn to stay above twenty percent in the fourth quarter. Year end discounts and new low cost rivals will likely make it worse.
This slowdown clashes with Elisa’s own plans. The company had said it wanted more than four percent annual growth in revenue and earnings from twenty twenty four to twenty twenty seven. Morgan Stanley now sees only two to three percent growth each year. It says the original targets were too hopeful.
Because of this weaker outlook, the bank cut its earnings forecasts for twenty twenty five to twenty twenty seven. Earnings per share estimates were reduced by four to seven percent. Revenue estimates were lowered by one to two percent. The new price target also reflects higher expected spending by the company.
Elisa’s share price has already fallen around ten percent this year. The stock now trades at a cheaper valuation than before. It has dropped from about eleven times expected twenty twenty six earnings to about nine times, which is closer to other Nordic telecom companies.
The dividend is still attractive, but there is a concern. Morgan Stanley points out that the dividend per share is now higher than its projected earnings per share. If profits weaken further, the dividend may not be easy to maintain.
Overall, the bank does not see strong reasons for the stock to jump soon. Competition is tough, churn is high, pricing pressure continues, and Elisa does not have as much room for cost cuts as some rivals. This suggests slower and softer growth ahead.