UBS Downgrades PLDT from Buy to Neutral, No Price Target Change

UBS has downgraded PLDT (PHI) from a "Buy" to "Neutral" rating, reflecting a change in the analyst's perspective on the company's future performance. The downgrade did not accompany any changes to the price target for PLDT. The average target price for PLDT is $31.10, implying an upside of 53.73% from the current price of $20.23. The estimated GF Value for PLDT in one year is $25.49, suggesting a 26% upside from the current price.

UBS has revised its rating for PLDT (PHI) from a "Buy" to "Neutral," reflecting a reassessment of the company's market position and future growth prospects [1]. The downgrade, which did not alter the price target, indicates a more cautious outlook on the performance of PHI. PLDT Inc., a leading telecommunications carrier in the Philippines, operates through three primary business units: Wireless, Fixed Line, and Others. The company provides mobile telecommunications services via its Smart and DMPI brands, while its Fixed Line services are primarily offered through PLDT and its subsidiaries.

Financial Health Analysis
PLDT's financial health presents a mixed picture. The company's revenue growth has been modest, with a 1-year growth rate of 2% and a 3-year growth rate of 4.1%. Over a 5-year period, revenue growth stands at 5.2%, indicating a steady, albeit slow, upward trajectory. However, the company's operating margin has been declining over the past five years, with an average annual decline rate of 12.7%, currently standing at 25.16% [1].

On the balance sheet front, PLDT's financial strength is concerning. The Altman Z-Score of 0.86 places the company in the distress zone, indicating a potential risk of bankruptcy within the next two years. The debt-to-equity ratio is high at 2.8, suggesting significant leverage. Additionally, the interest coverage ratio is low at 3.22, below the preferred threshold of 5, highlighting potential challenges in meeting interest obligations [1].

Business Performance
PLDT's revenue trends show a slowing growth pattern, with revenue per share growth decelerating over the past year. Despite this, the company maintains a robust gross margin of 86.53%, reflecting operational efficiency in managing its cost of goods sold. The company's return on equity (ROE) is strong at 27.63%, indicating effective use of shareholder funds to generate profits [1].

Valuation & Market Sentiment
PLDT's valuation metrics suggest the stock is trading at attractive levels. The price-to-earnings (P/E) ratio is 8.08, close to its 10-year low of 7.6, indicating potential undervaluation. Similarly, the price-to-sales (P/S) ratio of 1.14 and price-to-book (P/B) ratio of 1.98 are near historical lows, suggesting the stock may be undervalued relative to its historical trading ranges [1].

The stock has been on a downward trajectory, with a significant decline in the past few months. PLDT's ADR (PHI) is currently trading at $20.88, down $1.63 or 7.24% [2]. This decline has been the largest since December 2022, when it fell by 23.69%. The stock is down 9.53% month-to-date and 5.73% year-to-date. Despite the decline, the stock has shown resilience, trading near its 52-week low of $20.74 [2].

The recent regulatory changes in the Philippines, particularly the "Konetadong Pinoy" bill, have increased pressure on PLDT, leading to a downgrade by UBS [3]. The bill aims to enhance internet connectivity by encouraging competition and promoting infrastructure sharing. UBS analyst John Te expects the stock to trade sideways until the final implementing rules and regulations offer clarity on future share price direction.

Investors should weigh their options carefully before making further investment decisions, given the financial risks and UBS's recent rating adjustment to "Neutral." However, the stock's attractive valuation metrics and strong market position may offer potential opportunities for investors.

References:
[1] https://www.gurufocus.com/news/3082570/pldt-phi-receives-downgrade-from-ubs
[2] https://www.tradingview.com/news/DJN_DN20250827007088:0-pldt-down-over-7-on-pace-for-largest-percent-decrease-since-december-2022-data-talk/
[3] https://seekingalpha.com/news/4489682-philippine-telecom-law-increases-regulatory-pressure-on-pldt---ubs