On Wednesday, HSBC has updated its stance on Volvo (OTC:VLVLY) Car AB (VOLCARB:SS), increasing the stock price target to SEK52.00 from the former SEK43.00, while reiterating a Buy rating on the company's shares. The adjustment reflects an improved outlook based on the automaker's pricing strength and the anticipated successful delivery of new models.
The financial institution's analyst noted that the revised earnings before interest and taxes (EBIT), excluding joint ventures, have been adjusted upward by 4-9%. This revision is attributed to Volvo's pricing strategies, which have outperformed initial expectations, and a growing confidence in the rollout of the company's upcoming vehicle lineup.
HSBC's methodology for determining the new price target involves a sum-of-the-parts (SOTP) valuation. The new target suggests a roughly 25% potential increase from the current trading level of Volvo's stock.
The analyst emphasized the rationale behind maintaining a Buy rating, indicating the price target hike is not only rooted in higher earnings estimates but also a comparative re-rating of Volvo's industry peers.
The report also outlines potential risks that could affect the stock's performance. Among these risks are a potential downturn in the demand and pricing for battery electric vehicles (BEVs) and a lackluster consumer reception of Volvo's new model launches. These factors represent downside risks that could impact the company's share price trajectory.
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