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Investing.com -- Knorr-Bremse (ETR:KBX) has been upgraded to a "buy" rating by analysts at Jefferies, who cited improving earnings momentum and stronger growth prospects for the rail and truck divisions. The price target has been raised to €91, reflecting an expected total shareholder return of 23%.
Jefferies analysts pointed to a more favorable operating environment for Knorr-Bremse’s rail and truck segments, highlighting strong tailwinds that could drive margin expansion and earnings growth through 2026.
The analysts noted that rail operations are benefiting from robust order intake and increased regulatory and investment support, particularly in Europe, the U.S., and India.
With organic growth expected to reach about 7% annually through 2027, Jefferies believes the market is underestimating the division’s mid-term potential.
Additional growth opportunities could arise from Alstom’s U.S. signaling business, which may be announced in 2025.
As volume leverage improves and legacy backlogs clear, the segment’s EBIT is projected to grow at an 11% annualized rate through 2027.
In the truck division, Jefferies sees signs of an inflection point in the cycle. After a downturn over 2023-2024, the analysts expect a shorter and shallower dip, with demand beginning to recover in 2025.
Customers have signaled increased capital expenditure plans, and freight rates are improving. Truck manufacturers in Europe have reported rising orders, while in the U.S., new emissions standards set for the second half of 2025 could drive demand.
China is also expected to contribute to growth. The return of pricing power for original equipment manufacturers (OEMs) is another positive sign for suppliers like Knorr-Bremse.
According to Jefferies, truck order volumes likely bottomed out in the third quarter of 2024 and should see a recovery, particularly in the second half of 2025.
The analysts estimate Knorr-Bremse’s truck EBIT to be 3-7% ahead of consensus expectations for 2025-2026.
Knorr-Bremse has also been making changes to its portfolio under its new CEO, completing several disposals that have bolstered margins.
Additional disposals are anticipated in both the truck and rail divisions over the next two years, contributing to further efficiency gains.
The company’s cost-cutting program, BOOST, is expected to deliver additional margin improvements, with rail already approaching its 2026 profitability targets.
Trucks will need both market recovery and cost adjustments to reach those targets, but overall, Jefferies projects about 200 basis points of margin expansion by 2026, keeping them roughly 50 basis points ahead of consensus estimates.
In revising its valuation model, Jefferies moved its sum-of-the-parts (SOTP) analysis to 2026 estimates and slightly raised the multiple for the rail division to 15x EV/EBIT, up from 14x, reflecting stronger operational performance and a recovery from COVID-era challenges.
The truck division’s multiple remains unchanged at 10x. This results in an implied multiple of 13x for the overall company, up from the previous 12x valuation, supporting the new price target of €91.
With stronger growth expectations, margin expansion, and favorable cyclical trends in both rail and trucks, Jefferies has taken a more positive stance on Knorr-Bremse’s earnings potential over the next two years.