Goldman Sachs upgrades Pirelli to 'buy,' cites strong growth prospects

Investing.com -- Goldman Sachs analysts have upgraded Pirelli, the Italian tire manufacturer, to a "buy" rating in a report dated Tuesday. 

Shares of the company were up 2.9% at 08:25 ET (13:25 GMT).

This revision reflects the brokerage’s confidence in Pirelli's capacity to sustain and enhance its market position through high-value tire offerings, cost optimization, and favorable market dynamics.

The analysts project a 7.3% compound annual growth rate in earnings from 2024 to 2028, driven by strong demand for high-value tires and the company’s pivot away from less profitable standard tire segments. 

High-value tires already account for 76% of Pirelli's revenue and are anticipated to grow further due to rising adoption of electric vehicles and larger SUVs, which typically require advanced tire specifications.

Pirelli's financial health and operational efficiency also played a significant role in the upgrade. 

The company has reduced its debt since its 2017 IPO, with leverage dropping from 2.8x to an estimated 1.3x by the end of 2024. 

Additionally, its current valuation appears attractive, trading at a discount to its peers and its own historical averages.

The report highlights opportunities for Pirelli in regions such as North America, where the company is underrepresented relative to competitors. 

Initiatives like targeted product offerings and strengthened distribution networks are expected to help Pirelli gain market share in this critical region.

Goldman Sachs set a new 12-month price target of €7.1 for Pirelli, implying a 28% upside from its previous target of €6.4. 

Source: Investing.com