Goldman Sachs Removes Vodafone From Buy List, Downgrades On Lower Free Cash Estimates

In a report published Wednesday, Goldman Sachs analyst Tim Boddy downgraded the rating on Vodafone Group Plc (ADR) VOD from Buy to Neutral, while lowering the price target from 275p to 250p. The stock was also removed from the Pan-Europe Buy List. Following the recent outperformance of the stock, driven by the announcement that the company was in talks regarding a possible asset swap with Liberty Global plc - Class A Ordinary Shares LBTYA, the analyst believes that the risk/reward profile is "more binary." "We continue to view Vodafone as a leading beneficiary of ongoing ‘double' consolidation of both mobile and fixed-mobile operators, which supports a gradual return to top-line growth in Europe," Boddy elaborated, adding, "We see attractive operational gearing to this growth recovery given its low margins." The analyst also believes that Vodafone has significant M&A optionality and recent acquisitions by peers also indicate that mobile network ownership could offer strategic value in a converging market. Such M&A would also balance the structural risk the company currently faces, being a "mobile-centric fixed-line wholesaler." "Additionally, if management is willing to reconsider the structure of the group, we believe a number of other potential acquirers could take interest in its remaining assets," the Goldman Sachs report stated.