Continental shares rise 8% after Deutsche Bank upgrade on strong tire performance

Investing.com -- Continental AG shares climbed 8% on Friday after Deutsche Bank upgraded the stock to “buy” from “hold,” citing stronger-than-expected third-quarter earnings driven primarily by its tire division.

The brokerage also raised its target price to €65 from €63, highlighting a resilient price and mix performance that offset weaker volumes and external headwinds such as tariffs and foreign exchange pressures.

According to Deutsche Bank Research, Continental’s preliminary third-quarter 2025 results exceeded expectations on earnings, cash flow, and group margins. 

The Tires segment was identified as the main driver of the beat, supported by improved product mix, stable pricing, and cost efficiency. 

Tire revenues were reported at about €3.5 billion, roughly flat year over year, with volumes estimated down around 1%. 

The adjusted EBIT margin for the segment reached 14.3%, well above the 13% consensus, implying a 10% earnings beat. Strong winter tire demand and lower fixed costs also contributed to the positive outcome.

The ContiTech division, while reporting a year-over-year revenue decline to €1.5 billion, also outperformed expectations with an adjusted EBIT margin of 6.6% compared with the 4.6% consensus.

Deutsche Bank attributed this to cost measures and lower depreciation and amortization, both of which supported profitability.

At the group level, Continental posted an adjusted EBIT margin of 11.4%, exceeding the 9.5% consensus estimate by about 22%. Free cash flow reached €200 million, above expectations of €113 million.

Deutsche Bank described the Tire segment’s momentum as sustainable into the fourth quarter, despite a higher comparison base. 

The brokerage added that the performance could serve as a positive signal for peers such as Pirelli, especially after sector weakness following Michelin’s earlier warning.

With slightly raised forecasts for the Tires business, Deutsche Bank’s updated target price of €65 reflects improved mix assumptions and stronger cash generation. 

The analysts emphasized that Continental’s current trading levels present an “attractive entry point,” noting that the company’s implied 2026 EV/EBIT multiple of 6.5x remains below peers averaging around 7.8x.

The next potential catalyst, according to Deutsche Bank, is expected to be the formal announcement of the ContiTech disposal, anticipated sometime in the first half of 2026.

Key risks cited include potential failure to divest ContiTech at expected valuations, foreign exchange volatility, weaker demand or pricing, and higher raw material costs.