Stifel upgrades Volvo to 'buy' on strong 2025 outlook, growth prospects

Investing.com -- Stifel has upgraded Volvo's (ST:VOLVb ) stock to a "buy" rating from a "hold,” reflecting growing confidence in the company's market position and future performance. 

This upgrade comes with a revised price target of SEK 318, up from SEK282, signaling a 15.9% upside potential from its recent trading price of SEK 274.30 on October 18.

Stifel's analysts argue that despite Volvo’s underwhelming third-quarter 2024 earnings, where adjusted EBIT missed consensus estimates by 9%, the market is optimistic about the company's future. 

The weaker results were largely seen as stemming from temporary, Volvo-specific issues. Additionally, supplier problems in the U.S. affected its Mack truck operations, trimming truck margins for the quarter. 

However, these operational challenges are expected to be resolved in the short term. The company's ability to communicate these hurdles transparently and its strong track record of execution have provided reassurance to investors.

The key driver behind Stifel’s upgraded rating is Volvo’s positive market outlook for 2025, particularly in the North American truck market. Volvo has forecasted a rise in Class 8 truck volumes, providing a solid foundation for sector-wide confidence. 

Stifel notes that overall truck deliveries are expected to stabilize in 2025, with a return to growth anticipated in 2026. This aligns with investor expectations and suggests that the worst of the downturn in European truck deliveries—forecasted to fall by about 20% in 2024—may have passed.

Moreover, Volvo's solid positioning in the global truck market, backed by best-in-class execution, places the company in a strong position for future growth. 

Stifel's analysts expect that order volumes may rise in the coming quarters, which could act as a further catalyst for the stock. They also highlight that the company is trading at attractive valuation multiples compared to its historical performance.

On the downside, the construction equipment business, which represents about 20% of Volvo’s industrial revenues, continues to face pressure. 

Stifel forecasts that CE margins will contract by 210 basis points in 2024 due to lower deliveries in Europe and North America and an unfavorable regional mix, as demand in Asia increases. 

Nonetheless, the potential for stabilization in 2025 and a recovery in demand from Europe and North America presents an upside for the CE division, especially if interest rates fall and construction activity picks up.

Despite these challenges, Stifel’s revised rating of "buy" suggests that Volvo's long-term outlook remains promising, supported by its ability to navigate near-term obstacles while positioning itself for growth. 

“We understand that Volvo's outlook for North America is based on the assumption that pre-buys ahead of EPA27 will start to kick-in in 2H25 and that falling interest rates will generally support truck demand, which, in our view, means that volumes should be tilted towards 2H with a softer start to 2025. In 2026, we expect prebuys to kick-in at larger scale, which should further help volumes,” the analysts said. 

Source: Investing.com