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On Tuesday, Jefferies issued a downgrade for Eagers Automotive Ltd (APE:AU), shifting its stance from Hold to Underperform. The firm also set a price target for the company’s shares at AUD15.50. The decision comes despite acknowledging the company’s impressive performance over the past year, with its stock value climbing 80% against the ASX 300 index.
According to Jefferies, Eagers Automotive is currently trading at 19 times its projected FY25 earnings per share, which is significantly higher than the average of 11 times for U.S. dealers and 8 times for Australian dealers. The downgrade reflects concerns about the sustainability of such premium valuation metrics in light of recent trends in the Australian automotive market. New vehicle sales in Australia have seen a year-on-year decline of 5% in the calendar year to date for 2025.
The analyst at Jefferies pointed to the exclusive agreement with BYD (SZ:002594) as a crucial element supporting Eagers Automotive’s premium valuation. The agreement is expected to be a positive contributor to earnings, with BYD vehicles projected to account for 20% of the company’s profit before tax by FY27. Nonetheless, the analyst emphasized that "there’s a price for everything" and expressed the view that the stock’s current valuation fully reflects its growth prospects.
Despite the downgrade, Jefferies has made no changes to its forecasts for Eagers Automotive’s financial performance. The firm’s analysis appears to hinge on valuation concerns rather than any immediate deterioration in the company’s business outlook or financial health.
Investors and market watchers will likely monitor Eagers Automotive’s stock performance and company developments closely, as the automotive sector continues to navigate challenges and opportunities in the evolving market landscape.
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