Jefferies assumes coverage on Schaeffler stock with Hold rating

Jefferies has assumed coverage on Schaeffler AG with a Hold rating, lowering its price target to EUR4.45 from EUR5.80. The firm views Schaeffler as a significant transformation story, contingent on the profitability of its eMobility division, which is projected to drive a 67% increase in group EBIT by fiscal year 2027 under a base case, with potential for doubling if breakeven is achieved sooner. However, Jefferies highlights execution risk and the potential for increased hybrid penetration to impede the company's battery electric vehicle transformation efforts.

Analysis

Jefferies has initiated coverage on Schaeffler AG with a cautious 'Hold' rating, concurrently lowering the price target to EUR4.45 from EUR5.80. The firm frames Schaeffler as a significant transformation story within the automotive sector, with its prospects heavily dependent on the successful turnaround of its eMobility division. The potential upside is substantial, with Jefferies' base case projecting a 67% increase in group EBIT by fiscal year 2027, and a potential doubling of EBIT should the division achieve breakeven ahead of schedule. However, this potential is counterbalanced by considerable risks. Jefferies highlights execution risk, citing historical difficulties at Vitesco as a cautionary parallel, and notes a strategic vulnerability if consumer preference shifts towards hybrid vehicles over the battery electric vehicles central to Schaeffler's strategy. The upcoming Capital Markets Day is positioned as a critical event where management must provide a credible roadmap to profitability for the eMobility unit to validate the transformation narrative.

Key Decisions for Investors

• Investors should monitor Schaeffler's upcoming Capital Markets Day for specific milestones and a clear timeline regarding the eMobility division's path to profitability, as this is the primary catalyst identified.
• The current 'Hold' rating reflects a balanced risk-reward scenario; the potential for EBIT to nearly double is compelling, but this must be weighed against significant execution risks and the strategic threat of increased hybrid vehicle penetration.
• Given the substantial price target reduction, it may be prudent to await tangible evidence of margin improvement in the eMobility segment before adopting a more bullish stance on the stock.