Stellantis: Bernstein is cautious on shares as short-term risks increase

Investing.com – Bernstein has initiated coverage of Stellantis (NYSE:STLA) (BIT) with a "Market Perform" rating and a target price of EUR 22 or $23.50.

This represents an 18.7% increase compared to the closing price of EUR 18.544 on June 27, but it would not be enough to bring the stock back to the EUR 27 reached in March.

Moreover, based on the forecasts from the recent Capital Market Day, analysts see increasing risks for short-term results.

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A Tough 2024 for Stellantis

" Market normalization and U.S. pricing headwinds will weigh on ‘24 earnings," explains Bernstein, " while uncertainty on EVmargins and increasing competition outside the U.S. will hamper further re-rating."

Market experts, however, recognize the progress made by the automaker towards the long-term goals of the Dare Forward 2030 strategic plan. "The company is progressing towards its longterm Dare 2030 goals and is starting to produce reliably >€10b FCF. This in turn supports its dividend policy and buy-back plans, which we forecast to add 6% to EPS every year."

In the short term, the excessively high inventory levels in the United States, where Stellantis has increased prices more aggressively than its competitors, are a concern. According to analysts, this situation will cost about -25% annually on earnings per share in 2024.

Return to Growth in 2025

After overcoming this year's difficulties, Bernstein predicts a return to growth for the group led by CEO Carlos Tavares. "We expect to see a change of fortune in 2024 as the pricing cycle ends, the company suffers from its inventory problem in the U.S. and competition heats up in Europe. We forecast 2024 EPS at €4.83 (-25% yoy). But from 2025 onwards, we forecast rising revenues and margins as North America adds price and margin accretive volumes, while Third Engine growth more than offsets a weak European market. Ultimately, we see net income rising +4% p.a., but including the effect of buybacks we expect that EPS can rise +12% p.a. from 2024-27."

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