Volvo B - Upgrade to Neutral
Upgrade to Neutral – keeping estimates and PT unchanged
We upgrade our rating for Volvo to Neutral from Sell, on the back of the recent drop in the share price.
In our view, the stock looks fairly valued at current levels. We keep our price target and estimates
unchanged, with adjusted EPS of SKr7.3 and SKr7.8 for 2016E and 2017E, respectively. In the sector we
rate Legrand, Siemens, Alstom and Hexagon Buy. We have Sell ratings on Sandvik, Kone, ABB and GEA,
among others.
Negatives now reflected in the share price
When we downgraded Volvo in June 2014, we argued that the anticipated European recovery, with
pent-up demand for Europe almost entirely built on Italy, would likely disappoint, and that consensus
expectations for North America and Brazil, as well as the expected savings from restructuring, were too
optimistic (click here). Over the past year, the European recovery has disappointed, the US truck market
looks to have peaked and Brazil looks likely to fall further and bottom in 2015E. We believe these factors
are now priced in.
5% and 8% below the street for 2016E and 2017E, respectively, on EBIT
We are still below consensus: 5% and 8% below on EBIT and 6% and 7% below on the top line for
2016E and 2017E, respectively. We expect consensus to gradually come down low-to-mid-single digits,
primarily due to moderating US revenue expectations. However, we see little risk of major surprises in
Volvo's Q3 and Q4 results.
Valuation: PT SEK 95
At our PT the stock would trade on 10x our 2016E EBITA, some 10% above its long-term average.