On Wednesday, Citi reiterated its Buy rating on Volkswagen AG (VOW:GR) (OTC: OTC:VWAGY) shares, maintaining a stock price target of EUR158.00. The firm's analysis focused on various challenges and concerns specific to Volkswagen (ETR:VOWG_p), particularly its exposure to the Chinese market. Despite the concerns, the firm's stance remains positive due to the potential for future growth.
The commentary from Citi highlighted that investor worries are centered on Volkswagen's significant presence in China, which has seen a sharp decline, and questions about the company's ongoing mergers and acquisitions spending.
Moreover, there are apprehensions about regulatory risks related to carbon dioxide emissions for the fiscal year 2025 and other short-term issues. A key point of concern for investors is the forecasted reduction in free cash flow (FCF), which is expected to drop from EUR10.6 billion in the fiscal year 2023 to a guided EUR5.5 billion in the fiscal year 2024, representing less than 2% of revenues.
Despite these challenges, Citi's perspective is that Volkswagen's opportunity for growth remains substantial. The automaker has promised to decrease its spending from 14% of revenue in 2027 to 9% in the long term, which could significantly increase FCF to over EUR20 billion. However, Citi notes that investors may remain skeptical until more concrete evidence of this improvement is presented.
Citi's reaffirmation of the Buy rating indicates confidence in Volkswagen's potential to navigate through its current financial and operational challenges. While acknowledging the concerns that have been raised, the firm suggests that the automaker's long-term prospects are promising, provided that it can effectively manage spending and improve its FCF as projected.
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