DS Smith PLC (LON:SMDS) has been downgraded to ‘hold’ from ‘buy’ by Jefferies International as it cut earnings estimates following the packaging giant's recent full-year results.
The US investment bank had upgraded to ‘buy’ in April based on the FTSE 100-listed firm’s end-market resilience and the opportunity for market share gains.
READ: DS Smith weak as it holds off from reinstating dividend payments as full-year results dip
Jefferies analysts also saw a potential de-leveraging beyond the current financial year ending in April, 2021, however, this has been pushed back by 12 months after a 5%-10% cut to estimated earnings.
Full-year 2020/21 underlying earnings (EBITA) forecasts have been reduced to £500mln from £556mln reflecting higher pandemic costs at around £30mln, and a raw material squeeze. EBITA estimates for the year to April 2022 were chopped to £600mln from £638mln, while the price target was moved to 310p from 350p.
“With dividend disappointment, higher one-off COVID costs, a raw material squeeze & very weak North America divisional performance due to exposure to materially lower export paper prices, we have had incoming questions around the earnings' resilience,” Jefferies analysts said in a note to clients.
“We think SMDS will be range-bound until they demonstrate a path to US recovery and build conviction that they will deliver on the re-based earnings.”
The stock shed 4% to 279.3p on Monday morning.