Jefferies restores Continental to “buy,” cuts Pirelli to “hold” as sector outlook

Investing.com -- Jefferies upgraded tyre maker Continental to “buy” and downgraded Pirelli to “hold” after reassessing sector positioning following third-quarter 2025 results, saying Continental’s 2026 setup presents clearer upside while Pirelli offers limited near-term catalysts.

The analysts projected that Continental’s 2026 guidance is likely to fall within €18 billion to €19.5 billion in revenue and margins of 11.5% to 12.5%. 

Jefferies said this consensus framework appears “well set,” noting that the potential sale of the group’s ContiTech unit remains a key value lever. 

Based on an 8.6x EV/EBIT multiple, Jefferies estimated the business could add €5 to €15 per share depending on whether a buyer prices the unit on low or high ends of the mid-term earnings targets. The brokerage raised its price target for Continental to €75 from €70.

In tyres, Jefferies’ 2026 projections for Continental include €14 billion to €15 billion in revenue and margins of 13.5% to 14.5%, up from €13.5 billion to €14.5 billion in 2025. 

ContiTech, excluding OESL, is expected to generate €4.2 billion to €4.7 billion next year with margins of 8.5% to 9.5%, compared with 8.4% in 2025. 

Jefferies said parts of Continental’s strong third-quarter performance, helped by North American distribution shifts and winter-season timing in Europe, are likely to normalize in 2026, but overall expectations remain achievable.

For Pirelli, Jefferies said consensus for 2026 also appears solid, with estimated revenue of €6.7 billion to €6.9 billion and EBIT margins around 16% to 16.5%, compared with about 16% in 2025. 

The analysts forecast EBIT of €1.1 billion next year, integrating a €30 million net tariff impact, €200 million in financial expenses, around 1% volume growth, 2% mix improvement and 0% pricing. 

However, the report said the stock’s upside depends largely on re-rating potential rather than operational catalysts in the coming year. Jefferies lowered its price target to €6.50 from €7.40 and shifted the rating to “hold” from “buy.”

The analysts wrote that Pirelli continues to show value in its medium-term growth profile, supported by its high-value tyre mix, but near-term triggers appear less visible relative to peers. 

Jefferies also noted that Pirelli’s margin assumptions for 2026 include underlying stability in both high-value and standard segments, with the overall mix expected to reach 84.5% high-value volumes next year.

Michelin remains Jefferies’ top pick. The brokerage forecast 2026 segment operating income of €3.2 billion, 10% above consensus, driven by €400 million in added volumes and €150 million in fixed-cost absorption. 

The analysts projected offsets of €200 million from tariffs but gains of €100 million each from restructuring, mix and raw materials. 

Jefferies said several cyclical and one-off pressures that weighed on 2025 results, such as truck and agricultural weakness, distribution shifts and import front-loading, are expected to unwind over time. Michelin is rated “buy” with a €38 price target.