Robinhood shares gain on Q2 beat, as user and crypto growth accelerate
Investing.com -- Opmobility’s (EPA:OPM) earnings outlook has taken a hit, with UBS Global Research downgrading the stock to "sell" in a note dated Wednesday.
Shares of the French automotive supplier were down 5.6% at 08:35 ET (12:35 GMT).
The brokerage previously held a "neutral" stance but now warns that expectations for earnings and free cash flow are overly optimistic, creating downside risks for the stock.
A weaker-than-expected start to 2025 is expected to weigh on performance, as light vehicle production (LVP) outside China is projected to fall by 3% year-over-year.
The company has signaled a shift from its traditionally stronger first half to a more balanced performance throughout the year, adding uncertainty to second-half earnings.
UBS views this as a risk, noting that investor expectations may not fully account for potential weakness in early 2025.
UBS also highlights that market consensus is too bullish, projecting 20-30% annual EPS growth for 2025-26, while Opmobility’s own guidance is more cautious.
UBS analysts have revised their EPS estimates upwards by 15-30% but still remain 10-20% below consensus, seeing a more conservative earnings trajectory.
At the same time, free cash flow forecasts have been cut due to sustained capital expenditures and recurring cash outflows, with UBS’s estimates running 20-30% below consensus for 2025-27.
Beyond near-term challenges, UBS sees long-term structural risks. The company’s Lighting division is not expected to break even until 2026, while roughly 25% of its business remains tied to internal combustion engine (ICE) components, an area facing inevitable decline.
Efforts to pivot toward battery and hydrogen technologies remain costly and are unlikely to offset ICE losses in the short term, UBS notes.
On valuation, UBS argues that Opmobility is trading at demanding levels, with a P/E ratio of 8-9x for 2025-26, a 15% premium to peers.
The stock price appears to be pricing in revenue growth of around 3% annually and a 4.5% operating margin, assumptions that UBS views as ambitious given the industry backdrop.
Despite raising its price target from €8.40 to €9.50, UBS believes the market has not fully priced in the risks.
The brokerage sees limited positive catalysts for the stock in 2025, adding that a potential European market recovery could provide some relief, but downside risks remain elevated.