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On Monday, Bernstein SocGen initiated coverage on Subaru (OTC:FUJHY) Corp. (7270:JP) (OTC: FUJHY) with an Underperform rating and a price target of ¥2000.00. The firm highlighted Subaru’s status as a mid-tier automaker with high profit margins, currently maintaining a gross profit margin of 21.32% and generating $30.1 billion in revenue. The company’s strong presence in the North American SUV market has helped maintain its position as a prominent player in the global automotive industry.
However, the firm expressed concern over near-term challenges for Subaru, including the temporary production halt at the Yajima plant, which is expected to constrain volume growth. Bernstein SocGen analysts pointed out significant risks in Subaru’s core market, the United States, where the company’s heavy reliance on imported vehicles and parts could become problematic. An increase in US import tariffs could have a substantial impact on Subaru’s operations. According to InvestingPro, the company maintains strong financial health with more cash than debt on its balance sheet and liquid assets exceeding short-term obligations, potentially providing some buffer against these challenges.
The analysts also noted that while Subaru’s vehicle incentives remain below the industry average, they are still higher than pre-COVID levels. This could indicate pressure on the company’s margins and competitiveness. Subaru’s close collaboration with Toyota (NYSE:TM), where it is an equity-method affiliate, was acknowledged by Bernstein SocGen. Nevertheless, the firm raised concerns about Subaru’s independent efforts in developing electric and hybrid vehicles (xEVs), suggesting that this could be a potential issue in the long term.
The Underperform rating and price target reflect Bernstein SocGen’s cautious stance on Subaru’s stock, taking into account the various challenges and uncertainties the automaker faces in its key markets and in its strategic initiatives.
In other recent news, JPMorgan downgraded Subaru Corp.’s stock rating from Neutral to Underweight, while also lowering the price target to JPY2,500 from JPY2,700. This adjustment reflects concerns about Subaru’s profitability, particularly as analysts foresee a significant profit decline starting in FY2025. A key factor contributing to this outlook is the anticipated six-month production halt at Subaru’s Yajima Plant, which is expected to disrupt manufacturing operations. Additionally, Subaru’s shift towards hybrid electric vehicles (HEVs) using Toyota Hybrid System technology is predicted to affect its product mix negatively. This move, while aligning with industry trends towards environmentally friendly vehicles, is expected to incur higher costs for Subaru. The automaker is also preparing for a full model change for the Outback internal combustion engine model, alongside new HEV versions for models like the Forester and Crosstrek. These developments are set to coincide with the Yajima Plant shutdown, creating challenging operating conditions in the near term. Subaru has not yet commented on JPMorgan’s downgrade and price target revision.
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