CommScope Holding (COMM) faces a less attractive risk-reward setup heading into 2025, Morgan Stanley said in a note Wednesday, citing limited upside from AI and challenges in addressing upcoming debt maturities.

The firm noted that while CommScope's earnings before interest, taxes, depreciation and amortization are expected to grow from $725 million in 2024 to nearly $1 billion in 2026, much of this improvement is already factored into Street estimates.

"As we saw in Q3, [CommScope] has been able to drive meaningful profitability out of this business, even at reduced volumes," the investment firm said. "As volumes come back over the next couple of years, we see some margin improvement, but believe that is already built into Street estimates, which call for nearly 40% increase in profitability over the next two years."

Morgan Stanley remains cautious about the company's ability to refinance its 2025 and 2026 debt, with limited options for meaningful debt reduction or cash flow generation.

CommScope's planned sale of its Outdoor Wireless Networks and Distributed Antenna Systems assets to Amphenol (APH), expected to close in Q1 2025, will bring in $2.1 billion in cash proceeds, improving liquidity.

However, the company still faces significant challenges in managing $4.5 billion of secured debt maturing in 2026 and $3.5 billion due between 2027 and 2029.

"We could be too cautious if the company is able to refinance in a way in which total debt quantum is meaningfully reduced; however, our credit teams sees little optionality for that today," the note said.

The investment firm downgraded CommScope to underweight from equal-weight and kept its $5 price target.

Shares of CommScope were down more than 5% in recent trading.

Price: 5.51, Change: -0.30, Percent Change: -5.09