On Friday, UBS made a significant adjustment to its financial outlook for Bayerische Motoren Werke AG (BMW (ETR:BMWG):GR) (OTC: BMWYY (OTC:BMWYY)) shares, reducing the price target to €75 from the previous €94 while maintaining a Neutral rating on the stock. The decision follows a profit warning issued by the automaker earlier this week.
The firm's analyst cited a lowered earnings per share (EPS) forecast for the upcoming years as a primary factor in the price target adjustment. The EPS is now expected to decrease by 17% for the year 2024 and by 9% for 2025. The revised auto earnings before interest and taxes (EBIT) margin forecast now stands at 6.7% for 2024, down from 8.2%, and 7.2% for 2025, adjusted from 8.0%.
The profit warning's impact is attributed largely to two factors: the costs associated with the Continental AG (OTC:CTTAY) brake system issue and weaker demand in the Chinese market. The brake system problem is expected to lead to approximately €0.8 billion in warranty provisions and a negative sales impact of around €0.9 billion. The demand issues in China are projected to contribute to a further €0.8 billion shortfall.
The analyst anticipates that BMW will set its 2025 auto EBIT margin target at 6-8%, which is notably below the company's strategic goal range of 8-10%. This revised margin expectation is a direct consequence of the aforementioned challenges faced by BMW.
Furthermore, the analysis projects that BMW's automotive free cash flow (FCF) will be marginally above €4 billion for both 2024 and 2025. This projection implies a limited capacity for the company to engage in future share buybacks, given the reduced financial flexibility.
InvestingPro Insights
In light of UBS's revised outlook for Bayerische Motoren Werke AG (BMWYY), a glance at the latest InvestingPro data and tips can provide additional context for investors. The company's stock appears to be trading at a low earnings multiple, with a P/E ratio of 4.34, suggesting a potentially undervalued stock.
Adding to this, the P/E ratio has slightly decreased to 4.24 when looking at the last twelve months as of Q2 2024. Despite recent setbacks, BMWYY has maintained dividend payments for 33 consecutive years, which is reflected in a high dividend yield of 5.94% as of the latest data.
InvestingPro Tips indicate that the stock is currently in oversold territory according to the RSI, and it's trading near its 52-week low. This could hint at a potential turnaround opportunity for investors who believe in the company's fundamentals.
Moreover, BMWYY is a prominent player in the Automobiles industry, which may bolster investor confidence in the company's ability to navigate through current challenges. For those interested in exploring further, additional tips are available on InvestingPro, including insights on the company's profitability and stock performance over various time frames.
For a deeper analysis and more InvestingPro Tips, investors can refer to the full list available on the InvestingPro platform. The platform offers a total of 12 tips for BMWYY, which could provide valuable guidance for those looking to make informed decisions about their investments in the automotive sector.
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