Analyst Sees Over €10B Annual FCF For Stellantis, Despite Forecasting Lower Earnings In FY24-25

Bernstein analyst Daniel Roeska upgraded Stellantis N.V. STLA to Outperform from Market-Perform at an increased price target of $26.40 (from $18.50).

The analyst is bullish on the company as the union negotiations are nearing end.

Roeska says that the company will face sector headwinds in FY24, but its strong regional exposure and growth opportunities will aid it in driving underlying annual FCF of over €10 billion in FY24 and FY25.

Notably, the analyst notes that Stellantis can sustainably generate more than €22 billion operating cash flow annually and expects capex to remain elevated at €12 billion to €13 billion. 

With UAW negotiations on the verge of completion, the analyst anticipates the new CFO to become more explicit on shareholder distribution policy and expects continued dividends and buy-backs at >€7 billion.

Also, Roeska projects Stellantis' strategy for reducing debt, funding pensions, and normalizing working capital to be financed by its existing €25 billion excess cash resource.

However, the analyst lowered the earnings estimate by 5% for FY24 and 12% for FY25 owing to the slowing macro and pricing environment in the U.S. and Europe and assumed €2 billion additional labor cost over three years.

The net income estimate is now at the lower end of the consensus, around -10% below the consensus median in FY24 and -8% in FY25, writes the analyst. 

Yesterday, Stellantis reported Q3 FY23 net revenue growth of 7% Y/Y to €45.1 billion on improved volume and consistent pricing, partially offset by foreign exchange impacts. 

Price Action: STLA shares are trading higher by 1.79% at $19.01 on the last check Wednesday.