Knorr-Bremse falls over 4% as JPM and Citi downgrade on truck market woes

Investing.com -- Shares of Knorr-Bremse AG (ETR:KBX) declined more than 4% on Thursday after downgrades from both J.P. Morgan and Citi, with analysts citing deteriorating conditions in the North American truck market and limited near-term catalysts.

J.P. Morgan cut its rating to “neutral” from “overweight,” pointing to reduced upside after a 21% year-to-date rally.

The price target remains at €93, now based on December 2026 estimates. Citi followed on Friday with a downgrade to “neutral” from “buy,” trimming its price target to €92 from €97.

Both brokerage flagged ongoing weakness in the company’s Commercial Vehicle Systems (CVS) division, which generated about 38% of North American segment revenues in 2023. 

J.P. Morgan noted that U.S. heavy truck orders dropped 48% year-over-year in the first two months of Q2, with build rates down 19%. 

The removal of pre-buy demand tied to weakened U.S. emissions standards added to pressure on outlook. As a result, J.P. Morgan revised its 2025 organic growth forecast for CVS to -1% from 0%.

Citi echoed these concerns, warning that poor U.S. Class 8 truck data makes a second-half recovery unlikely. 

It sees a mid-single-digit downside to 2025 adjusted EBIT and flagged a potential negative catalyst if full-year EBIT margin guidance, currently 12.5-13.5%, is revised toward the lower end.

For Q2, J.P. Morgan forecasts group orders of €2 billion, revenue of €1.97 billion, and adjusted EBIT of €252 million, all 3–5% below Vara consensus. Segment-wise, Rail Vehicle Systems (RVS) revenue is expected to grow 9% year-over-year, while CVS may decline 14%. The group’s adjusted EBIT margin is projected at 12.8%.

J.P. Morgan projects full-year 2025 revenue of €8.05 billion, versus company guidance of €8.1–8.4 billion. 

Its adjusted EPS estimates have been lowered to €3.62 for 2025 and €4.45 for 2026, down 5–6%. The brokerage’s valuation is based on 13x 2027 estimated EV/EBIT.

Despite Knorr-Bremse’s long-cycle exposure to the rail market, J.P. Morgan expects minimal benefit from German government stimulus in 2025, citing the company’s limited exposure to signaling systems. 

While divestments in the RVS segment could support margins, material developments are unlikely before late 2025 or 2026. 

Analysts also cautioned that bolt-on acquisitions must offset earnings lost from any asset sales to prevent further downside risk to EPS.

Citi added that while long-term cost savings in the truck division may support margins eventually, these benefits likely won’t be visible until 2026. 

The brokerage has placed the stock on a negative catalyst watch ahead of H1 results, with near-term truck dynamics expected to be the primary driver of share performance over the next six months.