On Tuesday, Jefferies took a cautious stance on Audinate Group Ltd (AD8:AU), downgrading the stock from Buy to Hold and lowering the price target to AUD9.00 from the previous AUD12.00. The revision follows a recent trading update at the company's Annual General Meeting (AGM), marking the second downgrade in a span of fewer than three months.
The analyst cited a rapidly contracting backlog as a key concern, noting significant changes since the guidance update in August 2024. According to discussions with Audinate's management, there has been an unexpected acceleration in the reduction of backlog. This is attributed to an abundance of supply and inventory currently present in the channel, which is affecting the company's near-term outlook.
Lead times for Audinate's products have decreased to 2-3 months. The analyst expects that the increase in software mix will likely result in even shorter lead times than those experienced before the COVID-19 pandemic.
Despite management's expectations of a stronger second half of the fiscal year, Jefferies has opted for a more conservative forecast, anticipating a moderation in declines before a return to growth in US dollar gross profit (US$ GP) in the fiscal year 2026.
The revised estimates by Jefferies suggest a compound annual growth rate (CAGR) of 9% for Audinate's US$ GP from fiscal years 2024 to 2027. This outlook reflects a tempered view of the company's financial performance in the coming years, taking into account the current market conditions and inventory levels.
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