Jefferies downgrades SoftBank as its $100 billion investment to limit buyback

Investing.com -- Jefferies said SoftBank Group Corp's  (TYO:9984) over its $100 billion U.S. investment pledge may limit share buybacks and constrain stock upside. Brokerage downgraded the stock to “hold.”

The investment, focused on AI ventures, energy projects, and semiconductor production, could create long-term value, Jefferies said.

However, in the near term, funding challenges and a potential negative impact on Net Asset Value are raising red flags.

SoftBank’s stock trades at a 53% discount to its asset value per share, a gap the company has tried to narrow through buybacks. Jefferies noted that the investment commitment may restrict SoftBank's ability to continue buybacks, potentially widening the discount further.

The brokerage also flagged risks of selling key assets, like ARM Holdings (LON:ARM), to finance the plan, which could reduce overall NAV.

“Buybacks have been crucial in bridging the gap between NAV and stock price whenever it widens beyond 60% levels. But with this latest commitment, it seems that SBG may be constrained to execute another large buyback,” analyst said.

Jefferies lowered its price target on SoftBank to ¥9,930 from ¥13,540, on increased discount rates on key assets and limited near-term upside.

The stock has gained 4-5% about since the announcement however Jefferies analyst said “stock price up-move post the announcement makes little sense to us.”