Treasure Chest | Feb 23 2015
The situation thus far
Former market darling iiNet ((IIN)) has been on the nose with investors after releasing an interim report that failed to meet expectations. In response, stockbroking analysts have reduced forecasts and in many cases price targets too, while investors have exerted negative pressure on the share price.
The new forecast
Today, analysts at Morgan Stanley have released the outcome of further in-depth analysis and their conclusion is unequivocal: iiNet is too pricey in metro areas while competition is heating up. This means management has the choice to either reduce service prices, or allow market share to shrink.
It's a bit of a lose-lose situation, suggest the analysts, and they have thus sharply reduced expectations for the years ahead. This has resulted in a target price fall to $6.00 from $8.70 and a recommendation downgrade (double whammy) to Underweight (equivalent of Sell) from Overweight (equivalent of Buy).
Broader views
Out of the eight regular stockbrokers covered by FNArena, Citi remains the positive stand-out with an undeterred, non-consensus Buy rating in combination with a target of $9.06, more than 46% above today's share price. Citi's view stands in sharp contrast with Morgan Stanley's whose latest research outcome have led MS analysts to the conclusion that iiNet shares are facing continued de-rating on the back of a continued negative trend in profit forecasts.
Following the disappointing interim report, most stockbroking analysts have stuck to a neutral view, while most price targets now begin with a 6, suggesting investors better not expect to see a swift return to the $8.50 the shares were trading at as recently as in December. FNArena's consensus price target currently sits at $7.01, suggesting double digit upside from where the share price sits, but investors should note the consensus might be artificially high because of Citi's high mark target.
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