On Tuesday, Bernstein SocGen Group initiated coverage on Continental AG (ETR:CONG) (CON:GR) (OTC: OTC:CTTAY), a company known for its tire business and automotive components, assigning an underperform rating and setting a price target of EUR54.00. The firm pointed to significant challenges within the company's automotive component supplier sector, which has seen margins decline amid industry-wide issues.
Continental AG, which generates approximately 33% of its revenue from its tire business, contributing to 75% of its EBIT, has seen its stock value decrease by 75% over the past five years.
This decline contrasts with the performance of companies focused solely on tires, which have experienced an uptick during the same period. The analyst from Bernstein highlighted the pressure on Continental's automotive margins due to decreasing industry volumes, the impact of Covid, and the company's substantial exposure to semiconductor availability and costs.
The assessment by Bernstein suggests that for Continental AG's stock to improve, a turnaround in margins is essential. However, the firm expressed skepticism about the likelihood of such a recovery, attributing the company's difficulties to more deep-rooted structural issues rather than temporary market conditions.
Continental entered the automotive component supplier industry in the 1990s, achieving a leading position in the market for braking systems, electronics, and software, including sensors, actuators, and control units. Despite this success, the recent challenges have overshadowed the company's earlier achievements, leading to the current underperform rating from Bernstein.
In other recent news, Continental AG has maintained its Buy rating, with a target of EUR87, according to Citi. This development follows the announcement of the company's Chief Financial Officer (CFO) planning to depart after her contract ends in December 2024. The CFO's exit was unforeseen, however, the influence on the company's revitalization efforts is anticipated to be minimal. The CFO will maintain her present position until a successor is chosen, assuring financial leadership continuity.
Continental AG's margin expansion in auto-tech and its turnaround strategy are primarily led by the auto-tech CEO, Philipp Von Hirschheydt, whose contract is valid until 2026. CEO Nikolai has also recently prolonged his contract through 2029, further fortifying the management team's stability during this vital period.
The hunt for a new CFO has commenced, and the capital markets may react positively to a successor with automotive electronics expertise, given the significance of auto margin recovery to Continental's financial performance.
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