Goldman Sachs lowers Sunrise target price to CHF 39, maintains Sell rating

Overview

Goldman Sachs issued a rating change report on Sunrise (SUNN.S), updating financial forecasts based on Q1 2026 results. The firm maintains its Sell rating but lowers the 12-month target price from CHF 42 to CHF 39, primarily reflecting adjustments in service revenue, capex, and working capital trends, with a minor WACC parameter adjustment due to changes in risk-free rates.

Core views

The core driver of the target price reduction is a revision of financial forecasts: service revenue forecasts for 2026-2028 are slightly cut (1.8% decline in 2028), capital expenditure expectations are marginally increased, and working capital trend adjustments impact free cash flow. Although WACC decreasing from 7.5% to 7.3% positively contributes to valuation, downward revisions in earnings forecasts dominate the target price adjustment. Financial details show that adjusted EBITDA margins remain at 40.4% for 2026, but the margin forecast for 2028 slightly declines from 41.2% to 41.1%. Free cash flow forecasts for 2028 are cut by 3.9%, while net debt leverage remains in the 4.1-4.4x range. EPS forecasts for 2027 are raised from CHF 2.13 to CHF 2.16, but those for 2028 drop from CHF 2.89 to CHF 2.83.

Analysis framework

Goldman Sachs employs a valuation framework linking EV/IC with ROIC/WACC, determining reasonable valuations by comparing a company's return on invested capital against its weighted average cost of capital. In this adjustment, the WACC parameter was lowered as market risk-free rates fell, but downward earnings revisions offset this benefit. Methodologically, the report emphasizes tracking phased service revenue recognition, capex pacing, and working capital efficiency, highlighting the telecom industry's focus on cash flow stability.

Methodology notes

• Corporate Fundamentals and Financial FrameworkROIC–WACC spread

  ROIC–WACC Spread Analysis

  Evaluates value creation capability by comparing a company's return on invested capital (ROIC) with its cost of financing (WACC). A widening spread typically supports higher valuation. While the WACC cut should have been positive for valuation in this case, downward earnings revisions offset that effect.

Key data

• Target PriceCHF 39Down 7.1% from previous CHF 42
• WACC7.3%Lowered from 7.5% reflecting risk-free rate changes
• 2028 Service Revenue ForecastCHF 2,265 millionDown 1.8% from old forecast
• 2028 Free Cash FlowCHF 380 millionDown 3.9% from old forecast
• Net Debt/EBITDA Leverage4.1-4.4xRemains elevated for 2026-2028

Impact & implications

The report suggests that the target price cut reflects reduced near-term earnings visibility, though the long-term investment thesis remains intact. High leverage ratios (net debt/EBITDA exceeding 4x) limit financial flexibility; if fiber migration costs exceed expectations or competition intensifies, valuations could be further suppressed. Maintaining a Sell rating indicates the institution believes current share prices do not fully reflect downside risks.

Risks

• Fiber migration progresses slower than expected or costs exceed projections
• Industry competitive intensity increases
• Commercial execution underperforms expectations
• Rising bond yields increase financing costs