On Wednesday, Deutsche Bank (ETR:DBKGn) reiterated its Buy rating on Schaeffler AG (SHAU:GR) (OTC: SFFLY), with a steady price target of EUR9.00. The firm's analyst highlighted the company's strategic merger with Vitesco as a transformative step for Schaeffler, positioning it as a significant player in both electrification and internal combustion engine (ICE (NYSE:ICE)) powertrain markets.
The analyst noted that the merger is set to resolve previous concerns about Schaeffler by enhancing its electrification capabilities, increasing the free float, and eliminating preference shares. The combined entity is now one of the largest auto parts companies in the European Union and is well-positioned to take a leading role in the powertrain industry, offering substantial growth potential through electrification while also benefiting from the continued relevance of ICE models.
According to Deutsche Bank's analysis, Schaeffler is expected to see high-teens earnings growth up until 2026, primarily driven by improvements in electrification earnings. Despite 2024 being a year of transition and a remaining 7 percentage point share overhang that needs to be placed, the firm sees significant upside potential for Schaeffler. The analyst emphasized that the reshaped equity story presents a positive risk/reward scenario for investors.
Schaeffler's strategic initiatives are anticipated to address key investor reservations and strengthen its market position. With the merger's focus on creating a comprehensive powertrain offering, Schaeffler aims to capitalize on the growing demand for electrification solutions while maintaining a foothold in the ICE segment. The company's outlook is buoyed by the prospect of enhanced earnings through 2026, underpinned by the anticipated success of its electrification business.
In other recent news, Deutsche Bank resumed coverage on Vitesco Technologies Group, issuing a Buy rating and setting a price target of EUR102.60. The bank's analysis suggests that Vitesco is poised to significantly expand its electrification business in the powertrain market and potentially reach a break-even point within the 2024/2025 timeframe. Deutsche Bank's recommendation reflects confidence in Vitesco's comprehensive order book, which is believed to provide a measure of security against underperforming model lines.
The bank's price target for Vitesco is linked to the company's relationship with Schaeffler, as the target is derived from the exchange ratio to Schaeffler shares and Deutsche Bank's target price for Schaeffler. The bank anticipates that the combined entity of Schaeffler and Vitesco harbors upside potential. Deutsche Bank's stance is bolstered by the expectation that Vitesco's broad order book should act as a relative hedge to model lines that are trending below budget.
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