On Monday, CFRA analyst Firdaus Ibrahim adjusted the price target on Continental AG (ETR:CONG) (CON:GR) (OTC: OTC:CTTAY) shares, lowering it to EUR8.85 from the previous EUR10.00, while retaining a Hold rating on the stock. The revision reflects the ongoing challenges the company faces within the automotive industry. Ibrahim stated, "We lower our 2025 EPS forecast to EUR8.85 (from EUR10.00) and set our 2026 EPS estimate at EUR9.70." The company, with a market capitalization of $14.59 billion and annual revenue of $41.15 billion, has seen its stock surge by nearly 28% over the past six months. According to InvestingPro analysis, Continental AG currently appears undervalued relative to its Fair Value.
Despite these headwinds, CFRA has increased its 12-month target price for Continental AG to EUR75 from EUR63, citing management’s efforts to curb costs and improve efficiency. The new target is based on a price-to-earnings (P/E) ratio of 8.5 times for the year 2025, which is a slight increase from the company’s three-year average forward P/E of 7.9 times. This decision comes as the analyst sees justification for a higher multiple today, given the company’s proactive measures. Currently trading at a P/E ratio of 11.56x, InvestingPro data reveals the company maintains a healthy gross profit margin of 22.16% and has earned a "GOOD" Financial Health Score.
Continental AG has been grappling with rising costs and a decline in demand, which have impacted the profit margins of its Automotive division. Ibrahim’s commentary highlighted the pressures on the company, "In recent years, Continental has seen rising costs and weakened demand pressure margins for its Automotive division." InvestingPro subscribers can access additional insights, including 6 key ProTips and comprehensive financial metrics that provide deeper analysis of Continental’s market position and growth potential.
However, the analyst remains optimistic about the company’s potential for margin improvement in the near term. This optimism is rooted in the company’s ongoing cost-reduction strategies and efficiency enhancements. Ibrahim believes that these measures will provide the necessary support for margin improvements.
In contrast to its competitors, Continental AG’s valuation is still considered to be at a discount. This is attributed to the drag on margins from the Automotive division, which differentiates it from its pure-play premium Tire competitors. Ibrahim concluded with a note on the company’s relative market position, "Continental™s valuation remains at a discount compared to its pure-play premium Tire competitors due to Automotive™s drag on margins."
In other recent news, Continental AG reported its fourth-quarter financial results for 2024, which did not meet market expectations. The company’s forecast for both its Automotive and Tires divisions also fell short of estimates. Deutsche Bank (ETR:DBKGn) analyst Tim Rokossa responded by raising the price target for Continental AG to €75.00 from €70.00, maintaining a Hold rating on the stock. Rokossa noted that the weaker outlook for the automotive sector might have been anticipated due to similar projections from other companies in the auto parts industry. Despite the disappointing outlook, the analyst acknowledged Continental’s reasonable projections based on solid assumptions. Additionally, Continental announced an increase in its dividend to €2.5 per share, with a payout ratio of approximately 40%, indicating confidence in its balance sheet and cash generation capabilities. The company also confirmed that its planned spin-off remains on schedule. While the financial results were not as strong as hoped, Continental emphasized the strong cash generation potential of its tire business, which is currently affected by one-time cash outflows.
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