Volkswagen down after Stifel downgrade, citing lack of catalysts

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By Geoffrey Smith -- Volkswagen (ETR:VOWG_p) stock fell to a 2023 low on Friday after analysts at Stifel took an ax to their target price for the German carmaker, saying it had run out of catalysts.

Stifel cut its recommendation to neutral and nearly halved its target price to €149 from €295, expressing disappointment at its failure to re-rate after the spin-off of Porsche, and acknowledging heavier investment spending requirements in the future, including M&A-related. The new price target implies a valuation of 5 times earnings.

The German giant said earlier this week it would raise its rolling five-year investment budget by around 13% to €180 billion to accelerate its transition to electric mobility. Part of that spending will be on direct investments in mining operations for battery metals, reflection of how important it is for EV makers to secure vital inputs.

Despite heavy spending in recent years, it has failed to catch up on either Tesla (NASDAQ:TSLA) or Chinese rival BYD (SZ:002594), which is backed by Warren Buffett's Berkshire Hathaway (NYSE:BRKa). The extra spending needed to make it competitive will, however, be a drain on cash flow for years to come.

"VW is in the unusual position of a smaller challenger in the EV space - but it might not have the agility of a challenger and might need a scale advantage to succeed," Stifel's analysts said.

The Porsche spin-off has indeed unlocked value, but not in the way that VW perhaps intended; the company now trades at less than the value of its remaining stake in the sports car subsidiary, suggesting that the market attaches no value at all to the world's biggest volume carmaker, which also owns premium brands such as Bentley, Audi, and Lamborghini.

"Rather than being a positive trigger, the IPO seemed to cement the significant discount to the Sum-of-the-Parts value indefinitely," Stifel concluded.

By 10:40 ET (14:40 GMT), VW preferred stock in Frankfurt was down 3.5% at €118.14, its lowest since the end of December.

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