On Tuesday, Citi revised its price target for ZTE Corp (HK:0763). (763:HK) (OTC: ZTCOF (OTC:ZTCOF)), a major player in the telecommunications industry, to HK$19.80 from the previous HK$20.30. Despite this change, the firm has maintained its Buy rating on the stock.
The adjustment comes after the release of the company's first-quarter results for the fiscal year 2024, prompting Citi to update its model and introduce forecasts for fiscal year 2026. The revised price target reflects Citi's current stance on both ZTE's and the broader industry's future outlook.
Citi's analysis suggests that ZTE's high-margin domestic carrier network might experience some pressure due to a projected decrease in capital expenditure by Chinese telecommunications companies. However, this could be partially mitigated by a recovery in the international carrier business, government and consumer segments, according to the firm.
Citi anticipates that ZTE will continue to optimize its product mix and seize growth opportunities arising from Fiber to the Room (FTTR), artificial intelligence initiatives within China, fiber optics, and the ongoing upgrade to 4G and rollout of 5G projects internationally.
In light of these factors, Citi has slightly reduced its earnings estimates for ZTE by 1% for fiscal year 2024 and 3% for fiscal year 2025. These adjustments take into account lower revenue and margin assumptions, as well as recent foreign exchange rates. Despite the lowered earnings forecast, Citi reaffirms its Buy rating, with the new target price based on an unchanged price-to-earnings ratio of 8.5 times the firm's projected earnings for fiscal year 2024.
InvestingPro Insights
Amidst the recent updates from Citi on ZTE Corp's (OTC: ZTCOF) outlook, InvestingPro data and tips provide additional context for investors considering the company's stock. ZTE Corp holds the advantage of having more cash than debt on its balance sheet, which is a positive sign for financial stability and operational flexibility. Furthermore, the company's valuation suggests a strong free cash flow yield, indicating potential for investor returns. Analysts predict that ZTE will be profitable this year, which is consistent with the company being profitable over the last twelve months as of Q1 2024.
InvestingPro data shows a market capitalization of $16.8B USD and a Price/Earnings (P/E) ratio of 11.78 when adjusted for the last twelve months as of Q1 2024. This P/E ratio positions ZTE Corp as trading at a low earnings multiple, which could be attractive to value investors. Additionally, the company has demonstrated a gross profit margin of 40.32%, underscoring its ability to maintain profitability. With a current InvestingPro Fair Value estimation at $3.17 USD, the data suggests potential upside from the previous close price of $2.19 USD.
For investors seeking more depth, there are additional InvestingPro Tips on ZTE Corp that can be accessed, providing insights such as the company's position as a prominent player in the Communications Equipment industry and its low revenue valuation multiple. To explore these insights and more, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing their investment decisions with a comprehensive suite of tools and data.
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