EU and US could reach trade deal this weekend - Reuters
On Thursday, Bernstein analysts upgraded Pirelli & Co (PIRC:IM) (OTC:PLLIF) stock from Underperform to Market Perform, adjusting the price target to €5.20 from €4.60. The upgrade comes despite Pirelli stock’s year-to-date performance, which has seen an 8% decline, lagging behind its peers. This underperformance was primarily attributed to the expanded US tariff announcements and ongoing disagreements between Chinese and Italian board members regarding company ownership.
Bernstein analysts pointed out that Pirelli’s production in Mexico is compliant with the United States-Mexico-Canada Agreement (USMCA), sparing it from the 25% tariffs currently imposed. Although Pirelli is expected to take the largest earnings before interest and taxes (EBIT) hit among the covered companies under the existing tariff conditions, the firm believes that Tier 1 tire manufacturers are relatively well-prepared for the tariffs in comparison to their lower tier counterparts.
The report highlighted that lower tier competitors, which import all of their US sales from outside the USMCA region, will be directly affected by the full 25% tariff on all US sales. These manufacturers will likely need to implement significant price increases. For instance, Sumitomo Rubber, a Japanese competitor, has already announced plans to raise passenger tire prices by 25%.
In this context, Bernstein analysts expect that all Tier 1 tire manufacturers, including Pirelli, should be able to increase prices sufficiently to offset the impact of the tariffs. The adjusted price target reflects this view, suggesting a level of resilience for Pirelli in the face of the current tariff scenario. The upgrade to Market Perform indicates a neutral outlook on Pirelli stock, as the company navigates through the tariff-related challenges in the market.
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