Time to buy Mercedes, says Jefferies

Published 28/02/2024, 10:46
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Investing.com - Now is the time to buy Mercedes (ETR:MBGn) stock, according to Jefferies, with the investment bank upgrading its stance on the German auto giant.

Jefferies has been impressed with the management’s new strategy, saying they have designed and executed a thorough reinvention of what had previously been an under-managed car business. 

“The strategy yielded some of the sharpest improvement in the sector, including full balance sheet repair,” analysts at Jefferies said, in a note dated Fed. 28. “Among German OEMs, Mercedes is most in tune with shareholder interests and governance.”

The investment bank lifted its investment stance to ‘buy’ from ‘hold’, with a 12-month price target of €100.

“Rather than distributing an existing excess cash pile, paying out 100% of future FCF increases accountability and lowers the discount rate one should apply to distribution,” Jefferies added. 

Additionally, the new cash distribution policy should help shift the OEM valuation debate away from earnings momentum and cyclical risk to acknowledge a less volatile environment for earnings and cash flow.

“A protected fortress balance sheet, relatively well-invested transition strategy and a somewhat less cyclical industry, position Mercedes to credibly commit to return all of its cashflow to shareholders, all without undermining the ongoing sustainability of its business,” Jefferies summarized.

Mercedes stock rose 1.4% to €73.17.

 

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