On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on Bayerische Motoren Werke AG (BMW (ETR:BMWG):GR) (OTC: BMWYY (OTC:BMWKY)), shifting from an Equalweight to an Overweight rating. The firm set a price target of €85.00 for the automotive company's shares.
The upgrade follows a period of reduced earnings for BMW, attributed to a combination of factors including pricing, volume, and product mix issues, which have led to a lowered forecast for fiscal year 2024. Despite these challenges, the analyst highlighted that BMW's struggles are not unique, as the entire industry grapples with cyclical, structural, and geopolitical pressures.
BMW, in particular, has been under additional examination due to its approach in China, which initially aimed at preserving market share. Recent channel checks indicated a strategic shift towards prioritizing 'value over volume,' followed by a phase of higher rebates.
The analyst noted that with the improvement of affordability nearing historical levels, and given BMW's significant underperformance compared to its peers this year, the risk-reward balance for the stock is now seen as positively inclined. Another factor that could potentially benefit shareholders is BMW's substantial net cash position, which may be tapped for further returns, although the company traditionally exhibits more caution in this regard than its competitors.
The price target of €85.00 is grounded on approximately 9 times the estimated earnings per share (EPS) for fiscal year 2025, which aligns with the long-term average multiple. This marks an increase from the previous multiple of around 7 times. The revised EPS forecast for fiscal year 2025 now stands at €9.69, reflecting a 17% reduction from earlier projections. The new target is maintained despite these adjustments to earnings forecasts, indicating a confidence in the company's potential for recovery and growth.
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