On Friday, Barclays adjusted its stance on Mercedes-Benz (OTC:MBGAF) Group (MBG:GR) (OTC: DDAIF), downgrading the stock from Overweight to Equalweight and reducing the shares target to €65.00 from the previous €76.50.
This change follows the luxury automaker's announcement on September 19, after the market closed, that it was lowering its fiscal year 2024 (FY24) earnings guidance due to worsening macroeconomic conditions, particularly in China.
Mercedes-Benz revised its Mercedes-Benz Cars division (MBC) FY24 EBIT (earnings before interest and taxes) margin guidance to 7.5-8.5%, a decrease from the 10-11% forecasted at the half-year mark, and down from the 10-12% range set at the beginning of the year.
According to Barclays' analysis, based on the Bloomberg consensus revenue forecast of €110 billion for MBC in FY24, this adjustment suggests a €3 billion reduction in MBC's EBIT, which also impacts the group's overall EBIT since the outlook for other divisions remains unchanged.
The company anticipates that the second half of 2024 will see the MBC EBIT margin at 6%, with the third quarter expected to be slightly weaker than the fourth. Out of the €3 billion shortfall in EBIT, €0.5 billion is attributed to "valuation effects," which are considered more one-off in nature, while the remaining €2.5 billion is due to underlying issues.
The lowered guidance reflects the challenges Mercedes-Benz anticipates in the coming fiscal periods, as it navigates an increasingly complex economic landscape, with specific emphasis on the performance in the Chinese market.
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