On Tuesday, UBS revised its stance on Porsche AG (ETR:P911_p) (P911:GR), downgrading the stock from Buy to Neutral and significantly reducing the price target to €61.00 from the previous €87.00. The adjustment comes after a reassessment of the luxury carmaker's performance and outlook.
The downgrade was prompted by several factors affecting Porsche's operational performance and future projections. Notably, the company has encountered a series of execution issues that have impacted its revenues and margins, a trend that is expected to continue into 2025. Additionally, Porsche's sales in China, a key market, have nearly halved compared to 2022 levels, with no compensatory growth observed in other regions.
UBS also pointed to Porsche's ambitious battery electric vehicle (BEV) strategy as overly aggressive, suggesting it may require recalibration. The anticipated strong performance in 2025, bolstered by what was expected to be the youngest-ever product portfolio, has been reassessed. UBS now projects minimal operating profit (OP) growth for next year, based on an OP margin that is forecasted to be only between 14-15% for 2024.
The reassessment also led to a shift in the valuation approach for Porsche, with UBS stating that the previously assigned luxury price-to-earnings (P/E) ratio of approximately 20x is no longer justifiable. While acknowledging Porsche's strong brand and its long-term potential, UBS cited persistent deficits in execution and governance as ongoing drags on the company's financial performance, necessitating the neutral rating.
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