On Thursday, Citi updated its outlook on Autohome Inc. (NYSE: ATHM) shares, raising the price target to $28.00 from the previous $26.00, while retaining a Neutral stance on the stock. The adjustment comes ahead of the company's third-quarter 2024 earnings report, which is anticipated on November 6, 2024.
The firm anticipates that Autohome's revenue may fall short of expectations, but earnings are projected to align closely with the consensus. The second half of 2024 is expected to see a decline in advertising performance by original equipment manufacturers (OEMs) due to ongoing price competition.
However, lead generation is predicted to remain stable year-over-year, and the online marketplace could experience a slowdown. The introduction of new energy vehicle (NEV) stores is likely to counterbalance weaker trends in transaction and data products.
Citi foresees that adjusted earnings will remain stable in the third quarter of 2024, bolstered by tax benefits. However, there is a concern that earnings could deteriorate in the fourth quarter of 2024 if the top-line weakens. Consequently, the firm has revised its earnings estimates for 2024, 2025, and 2026 downwards by 6%, 1%, and 2%, respectively.
The new price target reflects the impact of Autohome's latest 12-month share repurchase program, valued at $200 million. Citi expects that the company will aggressively execute this buyback plan, which would reduce the number of American Depositary Shares (ADS) in circulation.
Despite the subdued fundamentals, Citi believes that the potential for satisfactory shareholder returns justifies maintaining the Neutral rating on the stock.
In other recent news, Autohome Inc. has reported a steady rise in its second-quarter and interim 2024 earnings. The company's total revenues grew by 2.2% year-over-year, reaching RMB1.87 billion. The adjusted net income attributable to Autohome was RMB572 million, with a net profit margin of 30.6%.
The online marketplace and other businesses contributed significantly to this growth, accounting for 33.1% of the total revenue. The company's new energy vehicles (NEVs) and data products also experienced substantial growth.
Autohome is expanding its new retail business and digitalization efforts, including partnerships with Ping An Group. It is also focusing on capacity building and increasing its inventory of high-quality, authenticated vehicles. The company's satellite store model for NEVs is expanding to cover more low-tier cities.
Despite some challenges, management remains confident in the long-term growth potential of China's auto industry. The company is addressing competition with product enhancements and user experience improvements. Autohome's commitment to innovation and user experience is evident through their introduction of new content formats and their collaboration with pan-media platforms.
InvestingPro Insights
To complement Citi's analysis of Autohome Inc. (NYSE: ATHM), recent data from InvestingPro offers additional perspective on the company's financial health and market position. Despite Citi's concerns about potential revenue shortfalls, Autohome's financials show some strengths.
According to InvestingPro data, Autohome boasts impressive gross profit margins of 82.28% for the last twelve months as of Q2 2024. This aligns with one of the InvestingPro Tips, which highlights the company's "impressive gross profit margins." This robust profitability could provide a buffer against the anticipated advertising performance decline from OEMs.
Another InvestingPro Tip notes that Autohome is "trading at a low revenue valuation multiple." This could be attractive to value investors, especially considering the company's P/E ratio of 11.63, which is relatively low for the tech sector.
Moreover, Autohome's strong balance sheet is evident from another tip stating it "holds more cash than debt on its balance sheet," potentially supporting the aggressive share buyback program Citi mentioned.
Investors might also be interested to know that Autohome has "maintained dividend payments for 5 consecutive years," according to InvestingPro Tips. The current dividend yield stands at 1.89%, which could provide some income stability for shareholders during periods of market volatility.
For those considering a deeper dive into Autohome's prospects, InvestingPro offers 8 additional tips, providing a more comprehensive view of the company's financial position and market performance.
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