On Wednesday, Jefferies, a global investment banking firm, revised its price target for Bayerische Motoren Werke AG (BMW (ETR:BMWG):GR) (OTC: BMWYY (OTC:BMWYY)), reducing it to EUR 80.00 from the previous EUR 95.00. The firm has decided to maintain a Hold rating on the stock.
The adjustment comes as a response to BMW's recent guidance revision, which included a significant warranty and repair issue related to braking, and a greater than expected impact from reduced sales volumes in China.
The revision was prompted by BMW's announcement of a substantial guidance revision, with a mid-point estimate of €3.3 billion. This figure was unexpectedly high, incorporating the costs of a braking-related warranty and repair issue, as well as a high operating leverage due to lost sales volume in China after BMW scaled back selling discounts earlier in the third quarter.
Jefferies has reduced its forecast for BMW's automotive EBIT by 26%, resulting in a reported margin of 6.6%, which is lower than the previously guided range of 8-10%. The new estimate aligns with BMW's updated guidance of 6-7%. Additionally, the firm has lowered its projection for the automaker's free cash flow (FCF) to €2 billion.
The decrease in the price target is also reflected in the discounted cash flow (DCF) and dividend-based price target, which has been adjusted to EUR 80.00 from the earlier EUR 95.00. Despite the lowered price target, Jefferies continues to advise investors to maintain their current positions with a Hold rating on BMW shares.
"In other recent news, BMW Group has been maintaining steady profitability despite industry challenges, as indicated by its earnings before tax of approximately €3.9 billion and a group EBT margin of 10.5%.
The company also delivered approximately 619,000 vehicles during the second quarter. RBC Capital maintained its Sector Perform rating for BMW, citing potential margin concerns due to a significant cut in earnings before interest and taxes (EBIT).
The company's exposure to the Chinese market, which has seen a 4-5% decrease in vehicle deliveries, was highlighted by RBC Capital. Additionally, BMW Group has been facing supplier issues, which are unique to individual original equipment manufacturers (OEMs).
In terms of future expectations, BMW Group aims to meet its 2024 targets, including an ambitious over €6 billion free cash flow for the year, as confirmed by CFO Walter Mertl.
The company also anticipates a slight increase in demand and sales in the Automotive segment for the full year, with a focus on all-electric vehicles. These recent developments underscore BMW Group's commitment to maintaining high profitability and adaptability in a rapidly changing sector."
InvestingPro Insights
As investors digest the recent guidance revisions from BMW and the price target adjustment by Jefferies, it's relevant to consider the latest data from InvestingPro. BMW's stock (OTC: BMWYY) is currently trading at a low earnings multiple, with a P/E ratio of 4.14, suggesting a potentially undervalued position compared to historical earnings. Despite recent challenges, BMW has maintained a strong commitment to shareholder returns, consistently paying dividends for 33 consecutive years, with a current dividend yield of 6.1%. This commitment is a testament to the company's financial resilience and long-term strategy.
InvestingPro Tips highlight that BMWYY has been trading near its 52-week low and has experienced a significant price drop over the last six months. This could indicate a potential buying opportunity for value investors, especially considering the company's status as a prominent player in the Automobiles industry. For a more comprehensive analysis, there are additional InvestingPro Tips available, which can provide deeper insights into BMW's financial health and market position.
InvestingPro Data shows that BMW has a market capitalization of $48.19 billion, with a revenue growth of 2.79% in the last twelve months as of Q2 2024. However, the company's gross profit margin stands at 17.0%, which may reflect some of the challenges mentioned in the article. For investors looking to make informed decisions, further InvestingPro Tips, including a total of 12 additional tips for BMW, are available and can be accessed to gain a more nuanced understanding of the stock's potential.
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