Citi adjusted its stance on Anima Holding SA (ANIM3:BZ), downgrading the stock from "Buy" to "Neutral" and reducing its price target to R$3.20 from R$5.00. The revision comes as growth trends for the company continue to fall short of expectations, which is anticipated to persist through the third quarter of 2024, with a significant year-over-year decline in core intake.
The decision to downgrade reflects concerns over Anima's revenue trends, which are deteriorating while the company has already maximized most of its margin improvement strategies.
Citi also highlighted the increased financial leverage following dividend distributions and the impact of rising interest rates on earnings forecasts. Consequently, Citi has decreased its earnings projections for Anima by 40% to 50% for the years 2024 and 2025.
Despite Anima's stock price dropping 13% over the past week, the current trading price reflects a price-to-earnings (P/E) ratio of 8.2 times for the estimated 2025 earnings, with a roughly 7% free cash flow yield to equity (FCFE).
Citi acknowledges that the recent decline in Anima's share price already partially accounts for the challenges faced by the company, yet the absence of clear catalysts for recovery justifies a more conservative approach.
In summary, Citi's downgrade is based on Anima's underwhelming growth trends and the maturation of margin improvement measures, coupled with the company's higher leverage and the broader economic context of rising interest rates affecting earnings.
This has led to a lowered price target and a shift to a neutral rating for the education services provider.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.