On Wednesday, Citi adjusted its outlook on shares of electric vehicle manufacturer NIO Inc. (NYSE:NIO), reducing the price target to $7.00 from the previous $8.50, while keeping a Buy rating on the stock. The revision reflects a change in valuation multiples and is based on anticipated improvements in the company's gross profit margin (GPM) due to increased sales volume and reduced promotional incentives.
Citi's analysis suggests that NIO's stock is currently trading at a substantial discount compared to its peer Xpeng (NYSE:XPEV). Specifically, NIO trades at approximately 0.8 times and 0.6 times its expected 2024 and 2025 sales (PS), respectively, which is about 30-40% lower than Xpeng's 1.4 times and 0.9 times for the same periods. The firm foresees the valuation gap between NIO and Xpeng narrowing in the future, potentially creating an arbitrage opportunity for investors in NIO's shares.
The financial institution also projects that NIO will benefit from broader sector and policy trends that are favoring less expensive consumer goods. These tailwinds are expected to support the company's performance in the face of a consumption downgrade.
In addition to the price target adjustment, Citi has increased its earnings per share (EPS) estimates for NIO for the years 2024 through 2026 by 1-9%. The new price target of $7.00, down from $8.50, has been calculated by applying a 1.4 times price-to-sales ratio (P/S) based on the one-year average, a reduction from the previously used 1.7 times P/S ratio. Despite the lowered price target, Citi reaffirms its confidence in NIO by maintaining a Buy rating on the stock.
In other recent news, electric vehicle manufacturer NIO Inc. has seen a few significant developments. The company's Chief Financial Officer, Steven Wei Feng, has stepped down and is succeeded by Stanley Yu Qu, NIO's Senior Vice President. Analysts from Morgan Stanley maintain an Overweight rating on NIO's stock, undeterred by the leadership transition. The company's performance remains solid with an order rate of around 5,000 vehicles weekly and a projected achievement of its second-quarter gross profit margin goals.
NIO is also dealing with the European Union's new tariffs on Chinese-made electric vehicles, which could potentially lead to price adjustments. Despite the added cost, NIO and other Chinese automakers have indicated their commitment to continue exporting to Europe.
Furthermore, Bernstein SocGen Group maintained a Market Perform rating on NIO shares following a first-quarter earnings report that showed a 7.2% year-over-year revenue decline, but an improved gross profit margin of 4.9%.
InvestingPro Insights
As investors consider Citi's revised outlook on NIO Inc. (NYSE:NIO), they may find additional context in real-time data and InvestingPro Tips. NIO's market capitalization currently stands at $8.59 billion, reflecting its position within the competitive electric vehicle market. Notably, the company holds more cash than debt, which could provide some financial flexibility in the near term. Additionally, three analysts have revised their earnings upwards for the upcoming period, suggesting an optimistic view on the company's future performance.
However, it is important to note that NIO's P/E ratio is at -2.84, indicating that the company is not currently profitable. With a gross profit margin of just 6.16% over the last twelve months as of Q1 2024, it underscores the challenges NIO faces in improving its profitability, as also reflected in Citi's analysis of the company's gross profit margin. Despite these financial metrics, NIO has experienced a significant return over the last week, which could capture the interest of investors looking for short-term gains.
For those interested in further analysis, InvestingPro offers a range of additional tips on NIO, providing a comprehensive outlook on the stock's potential. There are 12 more InvestingPro Tips available, which can be accessed for more in-depth insights into NIO's financial health and market performance.
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