On Thursday, Barclays (LON:BARC) adjusted its stance on Stellantis (LON:0QXR) NV (NYSE:STLA:IM) (NYSE: STLA), downgrading the stock from Overweight to Equalweight and slashing the price target to €12.50 from €23.00. This change follows Stellantis' recent profit warning that primarily affected its U.S. operations but also indicated weaker performance in the EU and Rest of the World (RoW).
Stellantis had issued a significant profit warning on Monday, prompting Barclays to conduct a comprehensive review of its financial model. This revision takes into account the challenges faced by Stellantis, including decreased market share and pricing pressures in the U.S., as well as market share erosion and launch delays in the EU.
The profit warning was a stark contrast to previous statements made by Stellantis' management. At the Capital Markets Day on June 12-13, CEO Carlos Tavares admitted to past mistakes, including an "arrogant" approach and a failure to adjust U.S. production in the second half of 2023. Despite these acknowledgments, the company had not been willing to rebalance U.S. inventory through pricing adjustments, a concern that has now been realized to a greater extent than anticipated.
Stellantis' CFO, Natalie Knight, had maintained as late as September 23 at a public event that the company was still aiming for a "double digit" EBIT margin for the second half of 2024. However, the profit warning issued at the end of September suggested an approximate 80% cut in EBIT for the same period. Knight had also noted that inventory reduction in the U.S. would take precedence over profit margins if necessary.
The downgrade by Barclays reflects the unexpected severity of the profit warning and the rapid change in Stellantis' financial outlook. The automotive company now faces the task of addressing these challenges while managing investor expectations in a volatile market.
In other recent news, Stellantis NV has seen significant changes in its financial outlook. The auto manufacturer has revised its adjusted operating income (AOI) margin to 5.5%-7.5%, a significant reduction from the previously anticipated double-digit figures. The company also expects its free cash flow to range from negative €5 to €10 billion. BofA Securities has subsequently adjusted its AOI estimates for the fiscal years 2024-2026 by 42%, 32%, and 26% respectively.
Furthermore, Stellantis' parent company, FCA US LLC, reported a 20% decline in total U.S. vehicle sales in the third quarter. Despite this, the company's market share has grown from 7.2% to 8%. Analyst firms such as HSBC (LON:HSBA), RBC Capital, and Piper Sandler have adjusted their price targets for Stellantis shares accordingly.
In addition, Stellantis is facing potential disruptions due to the ongoing dockworkers strike at U.S. East Coast and Gulf Coast ports. The strike has halted about half of the nation's ocean shipping, which could significantly affect European automakers, including Stellantis.
Despite these challenges, Stellantis has announced a $406 million investment in three Michigan facilities to bolster its focus on electric vehicle production. These are among the recent developments that have influenced the operations and financial outlook of Stellantis.
InvestingPro Insights
In light of Stellantis' recent profit warning and Barclays' downgrade, InvestingPro data offers additional context to the company's current situation. Despite the challenges, Stellantis maintains a low P/E ratio of 2.62, suggesting the stock might be undervalued relative to its earnings. This aligns with an InvestingPro Tip indicating that the company is "trading at a low earnings multiple."
The company's dividend yield stands at a substantial 9.3%, which corresponds to another InvestingPro Tip noting that Stellantis "pays a significant dividend to shareholders." This high yield could potentially attract income-focused investors, even in the face of recent setbacks.
However, reflecting the concerns raised in the article, InvestingPro data shows a revenue decline of 7.25% over the last twelve months, with an even steeper quarterly revenue drop of 13.57%. This data supports the InvestingPro Tip that "analysts anticipate sales decline in the current year."
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for Stellantis, providing a broader perspective on the company's financial health and market position.
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