By Wells Fargo analyst Colin Langan has given Chrysler parent company Stellantis a new rating: Sell. In fact, he holds downbeat calls on all three auto makers in Detroit. Langan believes that the challenges facing these companies will be difficult to overcome by 2024.
According to Langan’s report, the headwinds for Stellantis and its competitors include the shift towards battery-electric vehicles. This change puts pressure on their profitability and market share. Additionally, new car prices have reached historically high levels and are expected to stabilize. The demand for pickup trucks may have also already reached its peak.
Currently, Ford and GM only have about 3% of their sales coming from battery electric vehicles, while the industry average is around 8%. Stellantis has not started selling battery electric vehicles in the United States yet; they are focusing on the European market for now. However, Langan highlights that all three companies need to work on increasing the penetration of battery electric vehicles in U.S. car sales due to emissions regulations.
Another challenge is related to pricing. As a result of the pandemic, new cars in the U.S. have become approximately $10,000 more expensive. This price increase has affected demand, but industry experts anticipate a slow moderation in pricing.
Langan points out that historically, the demand for pickup trucks has been closely linked to housing starts. Therefore, a sluggish housing market adds to the challenges faced by the auto industry. Full-size trucks account for about 15% of all new car sales in the U.S., which is a crucial market segment for GM, Ford, and Stellantis.
Bearish Analyst Spurs Debate on Stellantis Stock
In a recent development, renowned analyst Langan has expressed bearish sentiments towards Stellantis stock. However, it is important to note that not everyone shares this pessimistic view. Approximately 90% of analysts analyzing the stock have given it a strong Buy rating, as reported by FactSet. This is significantly higher than the average Buy-rating ratio for stocks in the S&P 500, which stands at around 55%.
Moreover, analysts’ average price target for Stellantis shares is approximately $26, representing a projected increase of 15% from current levels. This positive outlook is echoed in the Buy-rating ratios for Ford and GM stocks, which stand at 50% and 65% respectively.
The average analyst target price for GM is around $46 per share, indicating a potential increase of about 35% from recent levels. Similarly, Ford stock has an average analyst price target of $13.20 per share, suggesting a potential growth of around 20%.
The optimistic arguments put forth by many analysts point to a combination of factors. These include moderating pricing, which is expected to drive higher sales volume, as well as relatively low valuations for these stocks. Stellantis stock, for example, currently trades at approximately 3.9 times its projected per-share earnings for 2024. Comparatively, Ford and GM shares trade at about 6.2 times and 4.4 times their respective earnings.
While sales volumes have experienced a decline due to higher prices and interest rates, analysts anticipate a turnaround in 2024. It is anticipated that both rates and pricing will decrease, providing some relief to car buyers. Over the past 12 months, Americans have purchased approximately 15.8 million new cars, which is around two million lower than pre-pandemic levels.
In terms of recent stock performance, Stellantis has outperformed its peers, registering a gain of approximately 55% over the past year. This can partly be attributed to a more favorable starting valuation.
Despite the Sell rating from Langan, Stellantis stock is holding steady in early trading, with the S&P 500 and Dow Jones Industrial Average also remaining relatively flat. Ford shares, on the other hand, have experienced a slight increase of 0.4%, while GM shares have declined by 0.2%.
It is worth noting that both GM and Ford stocks have faced significant challenges, with Ford stock declining by about 18% over the past year and underperforming the S&P 500 by around 33 percentage points. Similarly, GM shares have also faced a decline of approximately 12%.
In conclusion, while Langan’s bearish perspective on Stellantis stock has sparked debate, the majority of analysts hold a positive view, citing factors such as moderating pricing and low valuations as reasons for future growth.
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