Morgan Stanley Downgrades Orange on Slower Growth, Rising Leverage Concerns

Morgan Stanley has downgraded French telecommunications firm Orange SA to “underweight” from “Equal-weight,” cutting its price target to €15 from a previous €16.50. The investment bank's revised outlook is based on concerns over slowing profit growth in France, rising leverage following recent acquisitions, and heightened competition in the Spanish market.

Growth Outlook Weakens

Analysts at Morgan Stanley noted that several positive catalysts for Orange have now largely materialized, including French market consolidation and the company's full acquisition of Spanish operator MasOrange in June. The bank now projects a significant deceleration in the company's core earnings.

According to the note, Orange's French EBITDAaL growth is expected to slow to 2.4% in 2026 and just 0.4% in 2027. This is attributed to weaker wholesale revenue and the fading impact of previous labor-cost savings. Excluding one-time gains, Morgan Stanley forecasts that underlying EBITDAaL will increase by only 0.7% annually through 2028.

Balance Sheet and Market Risks

Morgan Stanley also highlighted increasing balance-sheet risk for the telecom operator. It estimates that Orange's leverage could rise to 3.0 times its earnings following the MasOrange deal, the purchase of fiber company Scorefit, and a potential acquisition of SFR from Altice France.

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Other headwinds cited by the bank include:

• Intensifying competition in Spain, with Telefonica dominating the premium segment and Digi gaining share in the discount market.
• Higher financing costs, as Morgan Stanley raised its weighted average cost of capital (WACC) assumptions for Orange's French and Spanish units by 25 basis points, reflecting a rise in French government bond yields.
• Political uncertainty in France ahead of the 2027 presidential election, which could weigh on the stock.

Contrasting Views

While Morgan Stanley's outlook is cautious, Orange itself recently reported a 2.4% increase in French EBITDAaL for the first half of 2026 and raised its full-year group EBITDAaL growth target to over 4%. The bank acknowledged its view could prove too conservative if competition in France eases, labor costs fall faster than expected, or emerging market operations outperform.