On Tuesday, Citi updated its outlook on Stellantis (LON:0QXR) NV (NYSE:STLA:IM) (NYSE: STLA) stock, reducing the price target to €17.00 from the previous €19.50. The firm maintained a Neutral rating on the automaker's stock. This adjustment follows a disappointing first-half performance for the year 2024, leading to a revised forecast that anticipates further challenges for the company.
Citi's revision comes after Stellantis reported weaker than expected results for the first half of 2024. As a result, the analyst at Citi has decreased the full-year 2024 adjusted operating income (AOI) margin forecast for Stellantis to 9.5% from the prior estimate of 9.8%. The lowered expectations are attributed to anticipated headwinds in the second half of the year.
Stellantis's efforts to address inventory issues in Europe during the first half of the year were acknowledged positively. The company also plans to implement a similar inventory adjustment in North America in the latter half of the year. However, these resets are expected to lead to a significantly weak third-quarter revenue report, which is projected to be released in October 2024.
The analyst further anticipates that the operational leverage in the third quarter will make it challenging for Stellantis to achieve the 10% AOI margin target for the full year. Additionally, the forecast suggests that the free cash flow (FCF) for 2024 may be substantially weak, indicating financial pressures ahead for the automaker.
The report concludes with the projection that any potential recovery for Stellantis might be delayed until the fiscal year 2025. This is when the inventory adjustments are expected to provide more favorable year-over-year comparisons, potentially aiding the company's performance.
In other recent news, Stellantis has been the subject of several developments. The U.S. National Highway Traffic Safety Administration (NHTSA) has initiated a preliminary evaluation into approximately 150,000 Stellantis vehicles following reports of potential loss of motive power due to electrical issues. The outcome of this investigation could have significant implications for the company.
Stellantis has also announced the opening of a new Mopar Parts Distribution Centre in Brampton, Ontario, representing an investment of $18.2 million USD. The facility is expected to create more than 170 jobs and is equipped with advanced technology to enhance efficiency and customer service.
HSBC (LON:HSBA) has revised the price target for Stellantis to €21.00, maintaining a Hold rating due to potential changes in financial guidance. Citi also maintained a Neutral rating on Stellantis, factoring in the company's challenging inventory situation in the U.S. and its earnings outlook.
In Italy, Stellantis may face a significant reduction in vehicle production due to recent purchase incentives for electric vehicles by the Italian government not stimulating demand as expected. Lastly, Stellantis has partnered with France's Commissariat à l'Énergie Atomique et aux Énergies Alternatives for a five-year research collaboration to develop next-generation battery cell technology.
InvestingPro Insights
Amidst the revised outlook from Citi, InvestingPro data and tips offer a more granular perspective on Stellantis NV's current financial status and market position. The company's aggressive share buyback strategy, as noted in one of the InvestingPro Tips, suggests a strong belief by management in the company's intrinsic value. Additionally, Stellantis's financial stability is underlined by its cash reserves, which exceed its debt, providing a cushion against the financial pressures highlighted in the analyst report.
In terms of valuation, Stellantis is trading at a low earnings multiple of 3.58, with a slight adjustment to 3.88 over the last twelve months as of Q2 2024, according to InvestingPro Data. This could indicate that the stock is undervalued, which is further supported by the fact that Stellantis pays a significant dividend to shareholders, boasting a high dividend yield of 7.31%. Despite recent stock performance challenges, with a price total return of -23.51% year-to-date as of 2024, the company is recognized as a prominent player in the Automobiles industry and is trading at a low revenue valuation multiple.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available that provide insights into Stellantis's operational and market performance. For instance, while analysts anticipate a sales decline in the current year, they also predict the company will remain profitable. To access these insights and more, visit https://www.investing.com/pro/STLA and consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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