On Tuesday, Morgan Stanley (NYSE:MS) upgraded the rating of Worldline SA (EPA:WLN:FP) (OTC: WWLNF) from Underweight to Equalweight and raised the price target to EUR8.00 from EUR7.00. Nolan's revision of the payment services company's outlook reflects a less challenging forecast for the fiscal year 2025.
The upgrade comes after a period of Underweight rating throughout 2024, during which Worldline traded at what Morgan Stanley described as "significantly depressed forward multiples." The company had been facing a highly uncertain growth outlook with limited visibility on near-term Free Cash Flow (FCF) generation, which contributed to the previous rating.
Despite ongoing longer-term concerns, the analyst believes that the expectations for Worldline's top-line growth have become more reasonable, with consensus expectations adjusted to low single-digit percentage growth. Additionally, the likelihood of Worldline announcing another major cost-saving or transformation plan in fiscal year 2025, which could have impacted FCF, is now considered to be low. This scenario is expected to lead to improved FCF conversion.
Morgan Stanley also pointed out that Worldline is trading at approximately 4 times its calendar year 2026 estimated adjusted Price-to-Earnings (P/E) and at around an 11% Free Cash Flow to Firm (FCFF) yield. With these valuations, Morgan Stanley anticipates a reduced risk of material underperformance for Worldline in 2025.
The analyst concluded that while addressing some of Worldline's fundamental competitive issues may be postponed, the market's concern over FCF could be alleviated in the short term if the company shows improvement in FCF conversion. This potential positive outcome has contributed to the decision to upgrade the stock's rating to Equalweight.
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