Investing.com -- Shares of Volvo (ST:VOLVb) rose on Friday after UBS analysts upgraded the stock to “neutral” from “sell.”
At 7:34 am (1134 GMT), Volvo was trading 1.9% higher at SEK 274.40.
This revision in rating reflects UBS's assessment that Volvo's current share price more accurately represents its risk and reward outlook, taking into account the market's mixed signals and expected improvement in performance for 2025.
Analysts at UBS cited that while the heavy-duty truck market in Europe and North America remains challenging, the company's fundamentals and market positioning have recalibrated to align with current economic conditions, balancing both near-term challenges and longer-term recovery.
“We believe the 2025 truck forecasts provided by Volvo & PACCAR (NASDAQ:PCAR) gave a relative degree of reassurance following the initial caution facing the sector on how deep the downturn could be,” said analysts at UBS.
While the decline expected in the truck market across Europe and North America remains a concern, data indicates it may not be as prolonged or severe as previously feared.
UBS's evaluation suggests that underlying conditions in Volvo's core markets should gradually improve by the second half of 2025, with North America likely to experience an uptick in sales due to a "prebuy" effect.
This term refers to the expected increase in truck orders ahead of upcoming EPA regulations, projected to spur demand in late 2025 as companies seek to expand their fleets before the rules take effect.
Volvo's European truck market is anticipated to stabilize by mid-2025, with some potential downside from ongoing economic stagnation in countries such as Germany but offset by relatively stronger demand in regions like the UK.
The company has adjusted production levels in line with demand, limiting overstocking and thus reducing financial strain even amid fluctuating order volumes.
This inventory discipline, combined with Volvo’s solid backlog from its Mack vocational trucks in North America, places the company in a resilient position despite the cyclical downturn in the highway segment of the trucking market.
UBS further pointed out that Volvo’s competitive pricing remains steady, which has helped maintain profitability even as broader market pressures persist.
Unlike competitors who might lower prices to capture market share, Volvo has opted to maintain stable pricing in a low-growth environment, which UBS believes will prevent a race to the bottom on margins.
The UBS report also raised Volvo’s price target from SEK 263 to SEK 274, valuing the company at a 7.3x EV/EBIT multiple over the coming 12 months, close to its historical average, yet slightly discounted.
This revised valuation places Volvo’s premium to its truck manufacturing peers at 6%, compared to a typical 8% premium.
UBS analysts noted that while this indicates some caution remains, the adjusted target captures Volvo’s alignment with current sector challenges and potential for growth by late 2025.
UBS flagged upcoming potential catalysts for Volvo’s stock performance, including order intake figures for North America, expected in late October, and additional strategy insights likely to be discussed at Volvo’s Capital Markets Day on November 14.
These events are anticipated to shed more light on Volvo’s ongoing adjustments and projected market share growth in the upcoming year.
UBS also emphasized that while the upgraded rating does not signal a definitive buy, it reflects a recalibration in the truck markets as the risk-reward profile of Volvo becomes more favorable, particularly as broader macroeconomic indicators show early signs of improvement.