BofA flags 'two key tailwinds' for beaten-down Stellantis

Investing.com -- Bank of America (NYSE:BAC) analysts pointed out “two key tailwinds” that could help the troubled Stellantis (NYSE:STLA) stock recover.

Stellantis, which has been impacted by competitive pressures, is expected to see a turnaround due to a refresh in its model cycle and potential automotive stimulus in the United States presented by President-elect Donald Trump.

The bank anticipates that new and updated models will contribute to 15-20% of Stellantis' sales, a substantial increase from the 5-10% contribution in 2024. Furthermore, the potential automotive stimulus by Trump’s administration could bolster the company's performance, particularly as Stellantis earns 35-40% of its revenue from the US market.

“Stellantis is also less exposed to Chinese competition within China,” BofA analysts led by Michael Jacks noted.

“We also see Stellantis as relatively better positioned to meet its 2025 CO2 targets vs key EU peers and flag multi-energy platforms as important strategic pillars providing flexibility to navigate uncertainty around BEV adoption and emission regulations.”

Despite 2024 being a challenging year marked by de-stocking and one-time pricing measures, BofA expects a recovery in 2025. The de-stocking process, which accounted for approximately 3 percentage points of volume decline in 2024, is seen as a one-time event.

With the launch of new models, Stellantis is likely to experience volume growth in the European B-segment, US muscle car market, and mid-size SUV categories, contributing to an estimated 6.7% increase in group shipments for the fiscal year 2025.

As such, BofA projects Stellantis’s group shipments to increase by 6.7% in the fiscal 2025 year. Adjusted operating income (AOI) margin is also projected to grow to 6.7% and adjusted earnings per share (EPS) to surge by 10%.

The automaker's automotive free cash flow (FCF) is also expected to return to positive territory, reaching €5.8 billion. These forecasts place BofA's expectations above consensus by approximately 5% for AOI and 12% for FCF.

In terms of valuation, Stellantis' stock is trading at forward price-to-earnings (P/E) multiples that align with European peers but at a 30% discount compared to US counterparts such as Ford (NYSE:F) and General Motors (NYSE:GM).

“While sentiment is currently depressed, we believe some of this discount can be closed if the company demonstrates a recovery in the performance of its North American business,” analysts wrote.

While estimates for fiscal years 2024-2026 have been slightly lowered due to costs associated with meeting CO2 emissions targets and a tougher market environment, BofA maintains its Buy rating and a price objective of €16 for Stellantis shares.

This article first appeared in Investing.com