The US investment bank reduced its target price for the FTSE 250-listed stock to 270p, down from 370p previously, with the shares currently trading at 276.60p, down 0.3% on Wednesday’s close.
In a note to clients, Morgan Stanley’s analysts said the target cut reflects adjustments for the pressure on letter volumes and a lower dividend pay-out assumption.
They pointed out they have increased their estimates for letter mail volume decline to -8% from -7% for full-year 2019, and to -7.5% from -6% for full-year 2020.
The analysts said they also cut their forecast for Royal Mail’s underlying earnings by 1% to £511mln, from £519mln for full-year 2019, and by 6% to £499mln from £543mln for full-year 2020.
They also reduced their pay-out ratio forecast to 80%, down from 100%, in-line with the average historical pay-out ratio.
They concluded: “While dividend growth remains unclear, the shares now reflect risks to EBIT growth, move to equal-weight.”