Automaker Stellantis (STLA) is expected to bounce back next year as it focuses more on gas-powered vehicles, thanks to looser U.S. emissions rules. Four-star UBS (UBS) analyst Patrick Hummel believes that this shift (along with cost savings) will help the company increase its adjusted operating income by €1.2 billion to €5.4 billion, or $6.27 billion. As a result, Hummel upgraded his rating on the stock from Hold to Buy and raised his price target by 45% to €12 ($13.94), noting that many investors haven’t fully priced in a turnaround, which could make now a good entry point.
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One key driver of this recovery, according to Hummel, is the return of base model trucks and new internal combustion engine (ICE) muscle cars, including the V8 Hemi truck and Jeep Cherokee. These additions are expected to fill important gaps in Stellantis’ lineup and boost market share. He also sees major upside, up to €40 billion in operating income, if Stellantis replaces plug-in hybrid vehicles with standard gas engines in the U.S. Further gains could come from shifting more manufacturing to the U.S., reducing depreciation and amortization, and cutting costs, which would add another €1.3 billion in potential income.
These changes are expected to help Stellantis move out of its recent period of heavy cash burn. By 2026, the company is forecast to return to positive free cash flow, despite some remaining costs tied to canceled vehicle programs and restructuring. Hummel also said that increased U.S. production could lead to better working capital, which may turn out to be a bigger factor than current forecasts suggest. However, he added that it might take more time before the company delivers significant cash returns to shareholders.
Is STLA Stock a Good Buy?
Turning to Wall Street, analysts have a Hold consensus rating on STLA stock based on five Buys, 10 Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average STLA price target of $10.86 per share implies that shares are trading near fair value.
