The Stellantis share recorded the biggest drop on the Paris Stock Exchange on Monday, after the announcement of a downward revision of its 2024 financial objectives linked to the difficulties that the automobile manufacturer is encountering in North America, to which is added the deterioration of the global automotive sector.
• Fair value estimate: €28,50
• Morningstar Rating: ★★★★★
• Economic Moat Rating: None
• Uncertainty Rating: High
At 4:07 p.m., Stellantis shares lost 14% to 12.51 euros.
The group now forecasts a current operating margin (AOI) of between 5.5% and 7% for the 2024 financial year, whereas it was previously targeting a “double-digit” current operating margin.
“Approximately two-thirds of the reduction in current operating margin is attributable to corrective actions in North America. Other factors contribute a third, including lower than expected second-half sales in most regions,” Stellantis said. in a press release.
Stellantis is now targeting a negative industrial free cash flow, between -5 billion euros and -10 billion euros, compared to the positive industrial free cash flow previously.
This downward revision “mainly reflects the prospect of a significantly lower current operating margin as well as the impact of temporarily high working capital in the second half of 2024,” explained the manufacturer.
“The magnitude of Stellantis’ warning this morning should accelerate the negative dynamic of results for the entire sector,” estimate analysts at Kepler Cheuvreux in a note obtained by Morningstar published this Monday.
For Oddo BHF analysts, this warning was somewhat expected given the macro context and the manufacturer’s specific problems, notably the increase in the stock of unsold vehicles in the United States.
They deplore in a note published Monday that Stellantis did not make an announcement sooner.
“Given its scale, such a warning should have been issued much earlier (the AOI margin for the second half of the year is now close to balance compared to >10% in previous forecasts). It therefore raises too many questions about governance at the head of the group so that a rapid turnaround can be expected and confirms that the confrontational approach taken with all stakeholders (employees, dealers, suppliers, governments and now even investors) was not the right one “, they observe in their note.
The announcement of this warning comes at the worst time for Carlos Tavares, boss of Stellantis, whose management methods, so far praised by investors and which had allowed the group to post very high margins last year, seem today produce negative effects for the car manufacturer.
Morningstar lowers its fair value estimate
Here is Morningstar analyst Rella Suskin’s comment following the Stellantis announcement:
“Stellantis has significantly lowered its outlook for the full year, now expecting an adjusted operating margin of between 5.5% and 7.0%, compared to previously forecasting double-digit margins While we thought its double-digit margin target was too difficult to achieve, we underestimated the magnitude of the shortfall.
Although our forecast from 2025 remains largely unchanged, the recovery in free cash flow, so far in 2024 alone, from around €500 million to over €6 billion negative, is significant for our fair value estimates.
Therefore, we are reducing our fair value estimates to €28.50 per share/$31 per ADR from €32 per share/$34.50 per ADR.
Stellantis expects to sell 200,000 fewer vehicles in North America in the second half compared to a year earlier, equivalent to about a quarter of sales in the second half of last year. In addition, greater incentives are needed to clear inventory and the cost of restructuring the segment is high.
Stellantis is also reporting lower-than-expected sales performance in most other regions, highlighting the impact of increased industry supply and more intense competition from Chinese automakers. We do not see Stellantis’ profitability returning to double-digit margins in the medium term, given increased competition in the sector.”
© Morningstar, 2024 – The information contained herein is for educational purposes and provided for informational purposes ONLY. It is not intended and should not be considered as an invitation or encouragement to buy or sell the securities mentioned. Any comments are the opinion of the author and should not be considered a personalized recommendation. The information in this document should not be the sole source for making an investment decision. Be sure to contact a financial advisor or financial professional before making any investment decisions.
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