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The rating change was driven by 3 key factors. Firstly, there is ongoing pressure on customer orders, as indicated by recent data points (ERIC/NOK pre-announcements, GLW intra-quarter commentary, and lead-sheathed copper overhangs for Telcos).
Secondly, there is a greater risk of downside to consensus estimates, particularly with regard to Commscope’s 2024 core adjusted EBITDA targets.
Lastly, the bank mentioned the company’s slower deleveraging process, with current leverage at 7x and “higher for longer” interest rates presenting incremental risks to FCF over the next several years.
Although investor sentiment is already low, and the stock has experienced recent declines, Deutsche Bank sees a lack of positive catalysts in the near term. According to the firm, simply relying on “hopes” or “optimism” for a significant rebound in orders or near-term estimates is not sufficient to justify a Buy rating on the shares in the interim.
