On Tuesday, UBS analyst changed the rating for Continental AG (ETR:CONG) (CON:GR) (OTC: OTC:CTTAY) from Neutral to Buy and increased the price target to EUR80.00, up from the previous EUR67.00. The upgrade comes with an analysis of the potential fair value for RemainCo, the core business of Continental AG, which could be between EUR80 and EUR120 per share. This valuation indicates a possible 30-100% upside compared to the current share price.
The analyst pointed out that the negative value currently associated with Continental AG's automotive sector is due to its lack of profitability and poor execution. Nonetheless, the analyst believes that the company's net cash position at the start of listing, along with potential mergers and acquisitions opportunities, should support a higher valuation.
In terms of NewCo, which represents Continental AG's recently spun-off powertrain division, the peer analysis suggests a valuation of EUR5-6 billion, equivalent to EUR25-30 per share. However, considering the uncertainties that investors may associate with this new entity, a more conservative valuation of EUR3-5 billion, or EUR15-25 per share, is deemed realistic by UBS. This represents a 10-40% discount on the initial estimates.
The analysis acknowledges that while the automotive sector of Continental AG might justify a negative value, the overall financial health and strategic options available to the company, including its net cash position and M&A potential, contribute to the improved outlook and higher price target.
In other recent news, Continental AG has been under the spotlight due to various financial forecasts and analyst ratings. Citi has reduced its price target for Continental AG to €73.00, while maintaining a Buy rating. This adjustment was prompted by a reassessment of financial forecasts, particularly for the automotive division, which now expects EBIT to reach €482 million with margins at 2.4%, a downward revision from previous forecasts.
Conversely, Bernstein SocGen Group initiated coverage of Continental AG with an underperform rating, citing declining margins and industry-wide challenges. They set a price target of EUR54.00, pointing to deep-rooted structural issues rather than temporary market conditions as the cause for the company's difficulties.
In other developments, Continental AG's Chief Financial Officer (CFO) is set to depart after her contract ends in December 2024. Despite this unexpected departure, the impact on the company's revitalization efforts is predicted to be minimal.
The company's auto-tech CEO, Philipp Von Hirschheydt, and CEO Nikolai, who recently extended his contract through 2029, will continue to lead the company's margin expansion and turnaround strategy. A search for a new CFO with automotive electronics expertise has commenced, emphasizing the importance of auto margin recovery to Continental's financial performance.
InvestingPro Insights
According to recent InvestingPro data, Continental AG (OTC: CTTAY) boasts a robust Piotroski Score of 9, indicating a strong financial position. Additionally, the company is trading at an attractive P/E ratio of 14.63, which is considered low relative to its near-term earnings growth potential. This aligns with the UBS analyst's optimistic view on the company's valuation and future prospects. Furthermore, the stock's price is currently at 78.61% of its 52-week high, suggesting room for potential growth as indicated by the UBS price target upgrade.
InvestingPro Tips highlight Continental AG as a prominent player in the Automobile Components industry and note that analysts predict the company will be profitable this year. These insights are particularly relevant as they support the UBS analyst's positive stance on Continental AG's RemainCo business. With Continental AG's profitability over the last twelve months and the potential for mergers and acquisitions to drive future growth, investors may find these insights from InvestingPro valuable for their investment decisions. For more detailed analysis and additional tips, investors can explore the full suite of insights on InvestingPro's platform, which currently lists over five additional tips for Continental AG.
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