On Thursday, BofA Securities updated its stance on Stellantis NV (NYSE:STLA:IM) (NYSE: STLA) stock, lowering the price target to €16 from the previous €21, while keeping a Buy rating on the stock. The adjustment comes after comments from Stellantis' CFO, Natalie Knight, at the '24 EU Autos Conference, highlighting the company's focus on maintaining a clean inventory over meeting 2024 key performance indicators (KPIs).
Stellantis has revised its adjusted operating income (AOI) margin to 5.5%-7.5%, a significant reduction from the initially projected 'double-digit' figures. The company also expects free cash flow (FCF) to be in the range of negative €5 to €10 billion, a stark contrast to the previously anticipated 'positive' cash flow. These revisions have prompted BofA Securities to lower its AOI estimates for the fiscal years 2024-2026 by 42%, 32%, and 26% respectively.
The reduced forecasts also impact the net cash position expectations, which are now set at €15 billion, down from €27 billion. Despite this, Stellantis' gross liquidity is projected to remain within the target range of 25-30%, with BofA's estimate at 28%. This liquidity level is expected to support the continuation of dividend payments.
BofA Securities' latest earnings per share (EPS) forecast, along with a 30% payout ratio—which is considered the ceiling—indicates an approximate dividend yield of 5%. The firm notes that while this calculation does not currently reflect an increased payout ratio, there is potential for Stellantis to raise it, which could present an upside for investors in 2025. However, BofA also mentions that there seems to be limited scope for further share buybacks at this time.
In other recent news, FCA US LLC, a North American automaker, reported a 20% decline in total U.S. vehicle sales in the third quarter of 2024 compared to the same period last year, despite an increase in market share from 7.2% to 8%.
The company's parent, Stellantis NV, revised its financial guidance, reducing its expected adjusted operating income margin for the fiscal year to between 5.5% and 7.0%. Analyst firms HSBC, RBC Capital, and Piper Sandler have respectively adjusted the price target for Stellantis shares and maintained their ratings.
Meanwhile, a dockworkers strike at U.S. East Coast and Gulf Coast ports poses significant challenges to European automakers, including Stellantis. The strike has halted about half of the nation's ocean shipping, potentially disrupting the operations of European automakers.
Stellantis has also announced a $406 million investment in three Michigan facilities to bolster its focus on electric vehicle production. These are recent developments that have influenced the operations and financial outlook of Stellantis.
InvestingPro Insights
Recent InvestingPro data provides additional context to Stellantis' financial situation and market performance. Despite the lowered price target from BofA Securities, Stellantis still presents some attractive metrics for value investors. The company's P/E ratio stands at a low 2.73, indicating that the stock may be undervalued relative to its earnings. This aligns with an InvestingPro Tip noting that Stellantis is "trading at a low earnings multiple."
Furthermore, Stellantis boasts a significant dividend yield of 9.3%, which supports BofA's expectation of continued dividend payments. This high yield is reflected in another InvestingPro Tip stating that the company "pays a significant dividend to shareholders."
However, investors should be aware that Stellantis' stock has faced recent challenges, with a 1-month price total return of -14.33% and a 6-month return of -47.1%. This performance is consistent with the InvestingPro Tip indicating that the "stock has taken a big hit over the last six months."
For those considering a deeper analysis, InvestingPro offers 16 additional tips for Stellantis, providing a more comprehensive view of the company's financial health and market position.
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