Telecom Argentina stock initiated with Buy rating at UBS on value potential

UBS initiated coverage on Telecom Argentina (TEO) with a Buy rating and a $17.00 price target, implying a 51% upside from current levels, citing the company's substantial 40% EV/EBITDA discount to Latin American peers. The firm believes TEO has multiple levers for value creation, including pricing power and operational efficiency, anticipating a re-rating as free cash flow visibility improves. This positive outlook follows Morgan Stanley's recent upgrade of TEO to Equalweight, which was driven by reduced macroeconomic risk in Argentina.

Analysis

UBS has initiated coverage on Telecom Argentina (TEO) with a Buy rating and a $17.00 price target, implying a significant 51% upside from its current trading price of $11.25. This positive outlook is underpinned by TEO's substantial 40% EV/EBITDA discount relative to Latin American peers, with the stock currently trading at approximately 3x 2026E EV/EBITDA, a valuation UBS attributes to historical macroeconomic and political volatility. InvestingPro data indicates a current LTM EV/EBITDA of 9.17x based on $1.06 billion EBITDA.

The investment bank identifies multiple levers for value creation, including enhanced pricing power, operational efficiencies, declining capital expenditure intensity, and potential integration synergies. UBS anticipates a re-rating of the stock as free cash flow becomes more visible, shifting investor focus to a free cash flow yield basis, which currently stands at 7% with $432.64 million in levered free cash flow for the last twelve months.

This bullish sentiment is further supported by recent developments, including Morgan Stanley's upgrade of TEO from Underweight to Equalweight, raising its price target from $7.00 to $11.00. Morgan Stanley cited reduced macroeconomic risk in Argentina following recent electoral results as a key driver for improving the company's risk-reward profile. Although Q2 2025 revenue missed expectations by 12.12%, the company reported a narrower-than-expected loss per share, beating forecasts by 48.92%.

Key Decisions for Investors

• Investors should evaluate the potential 51% upside to UBS's $17.00 price target, considering the identified valuation discount to peers and the multiple levers for value creation.
• Monitor the upcoming Q3 earnings report on November 6 for further clarity on revenue trends and free cash flow generation, as improved visibility could act as a catalyst for a re-rating.
• Assess the impact of reduced macroeconomic risk in Argentina, as highlighted by Morgan Stanley's upgrade, which could mitigate previous concerns regarding TEO's operational environment.