Investing.com — Following a recent selloff in Porsche AG (ETR:) stock, analysts at Citi Research defended their “buy” rating on the shares, citing a potential opportunity amid what they describe as “capitulation” in investor sentiment.
Porsche’s shares have halved since their May-June 2023 peak, with a further 10% drop last week.
The declines are linked to sharp drops in Chinese sales, weaker performance of the Macan model, global pricing issues, and a decrease in Porsche’s earnings per share.
Broader market concerns over EU automakers, exacerbated by fears of China demand slowing, potential tariffs, and EU environmental regulations, have created what Citi sees as an exaggerated downturn.
Citi analysts argue that the fears surrounding Porsche’s prospects are unlikely to fully materialize. They flag that while China’s contribution to Porsche’s earnings before interest and taxes might decrease to 12%-15% in FY2025, this impact remains relatively limited.
Concerns over tariffs in China and the U.S. are also deemed manageable, with Citi estimating a mid-single-digit EPS impact that seems already priced in.
Meanwhile, EU CO2 regulations pose a challenge, but Citi views Porsche as better positioned than peers to absorb associated costs.
Despite a decline in momentum, the analysts maintain confidence in the company’s potential recovery. They anticipate that Porsche’s earnings will rebound in FY2025, driven by easier year-on-year comparisons and improvements in margins, which they forecast to exceed 15%.
However, execution by Porsche’s management remains a key focus, particularly in addressing ongoing operational issues that have raised concerns among investors. Citi sets a price target of €85 for Porsche shares, representing a significant upside from the current level of €56.62.
The firm uses a discounted cash flow model for valuation, assuming long-term EBIT margins of 18%, underpinned by Porsche’s profitability relative to peers like BMW (ETR:) and Mercedes-Benz (OTC:) Group.
Analysts said that while risks such as higher investment costs or more prolonged headwinds exist, the current valuation appears attractive given the potential for recovery.
