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On Thursday, Barclays (LON:BARC) adjusted its stance on Bayerische Motoren Werke AG (BMW (ETR:BMWG):GR) (OTC: BMWYY (OTC:BMWKY)), downgrading the company’s stock from Equalweight to Underweight, while simultaneously raising the price target to €73.50 from the previous €68.50. The change in rating comes after a previous upgrade to Equalweight on October 3.
The firm’s analysts cited several reasons for the downgrade, including BMW’s lower EBIT (earnings before interest and taxes) margin sensitivity to potential EU-US tariffs, which is seen as a disadvantage compared to other European original equipment manufacturers (OEMs). The analysts noted that while BMW remains a solid and relatively inexpensive company, it is now viewed less favorably compared to an Equalweight-rated Mercedes-Benz (OTC:MBGAF) Group (MBG).
Barclays highlighted that tariffs are generally negative for all EU OEMs, with the exception of Renault (EPA:RENA) (RNO), which is mostly unaffected by tariffs. The decision to hold an Underweight rating on one German OEM was based on a combination of cyclical and structural headwinds facing the industry. These include the risk of continued structural profit pool erosion for German OEMs in China and the potential for industry-wide price normalization from post-COVID elevated levels.
The analysts expressed a preference for Mercedes-Benz Group over BMW at this time, suggesting that BMW is the least preferred option among the German OEMs they cover. The updated price target reflects a modest increase despite the downgrade, indicating a nuanced view of the company’s valuation prospects.
Investors and market watchers will be keeping an eye on how these factors play out in the coming months, particularly as the automotive industry continues to navigate the post-pandemic landscape and potential trade disruptions.
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