Megaport Ltd (ASX: MP1) shares will be on watch on Monday morning.
That's because the ASX 200 tech stock has just lost one of its most bullish brokers.
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What is the broker saying about this ASX 200 tech stock?
Megaport is leading provider of scalable bandwidth for public and private cloud connections, metro ethernet, data centre backhaul, and internet exchange services.
According to a note out of Goldman Sachs, its analysts have been disappointed with the tech stock's revenue and customer trends over the last 18 months.
And with management recently providing subdued guidance for FY 2025 and softer than expected FY 2026 expectations, the broker isn't feeling anywhere near as bullish as it was just a couple of months ago.
In light of this, Goldman Sachs has reduced the multiples that it believes the ASX 200 tech stock deserves to trade on, which results in a much lower valuation. Its analysts explain:
We believe the FY25 guidance and FY26 outlook reflects a material change in our prior bullish expectations for forward revenue growth and customer trends. We lower our FY26-27 revenues a further -1% to -2%, but still have growth accelerating into FY27E (+13%).
Given this revenue forecast, and the operating leverage of the business, we lower our FY26-27E EBITDA estimates by -2% to -7%, noting our forecasts now reflect FY26/27 EBITDA growth of 11% to 20%. As a result of the slower forecast growth and greater uncertainty, we decrease our FY26 EV/EBITDA multiple by 6x and now use a 21x fundamental valuation, and a 32x M&A valuation (down from 37x).
Downgraded
As a result of the above, the team at Goldman Sachs has downgraded the ASX 200 tech stock to a neutral rating (from buy) with a reduced price target of $8.00 (from $10.40).
Based on its current share price of $7.64, this implies potential upside of only 5% for investors over the next 12 months.
Overall, Goldman Sachs appears to believe the recent period of underperformance could continue for a little while longer. The broker concludes:
Looking forward, we see key upside/downside risks for Megaport including: (1) Easing/worsening of fixed enterprise competition; (2) Improvement/decline in overseas penetration across the US and EMEA; (3) Stronger/weaker terminal margins; and (4) Improved/weaker conversion of GTM sales/investment into revenue growth. Since initiating with a Buy rating on MP1 on 23 Jan 2022, MP1's share price is -50% vs. the ASX200 +16%.
