JPMorgan has reduced its rating on Pirelli to Neutral from Overweight following the Italian tire maker's first-half financial report, saying that the company's recent operating results leave little room for price-target upside.
The bank's analyst, Jose Asumendi, characterized the results as "solid," noting second-quarter revenue of 1,757.3 million euros and organic sales growth of 1.4% when excluding foreign-exchange effects, hyperinflation and changes in the scope of consolidation. When those factors are included, overall top-line growth for the period was 1.0%.
JPMorgan highlighted that price and mix effects added 2.9% to revenue, a benefit the firm attributed to an improved product mix and a favorable regional mix. On the profitability front, adjusted EBIT increased by 0.7% year over year, reaching 280.4 million euros, while the company's adjusted EBIT margin remained steady at 16%.
On cash flow, the bank pointed out a deterioration in net cash flow before dividends and before consolidating the Xushen Tyre call option: it was negative 556.9 million euros in the first half, compared with negative 503.7 million in the prior-year period.
Despite acknowledging the stable operating performance, JPMorgan said it lowered its rating after the company's earnings call because its internal estimates were "not differentiated from consensus." The firm also noted that the stock is trading at approximately 1.3 times fiscal 2026 EV/sales, effectively sitting at JPMorgan's price target.
JPMorgan reiterated its view that Pirelli should be able to carry out its industrial plan and that management is expected to protect cash flow and the balance sheet over the medium term.
Analyst takeaways
- Pirelli reported modest organic revenue expansion and a small rise in adjusted EBIT, with an unchanged adjusted EBIT margin of 16%.
- Price/mix helped results, contributing 2.9% through a better product mix and a favorable regional mix.
- Net cash flow before dividends and before consolidating the Xushen Tyre call option was more negative year over year.
Market implication
JPMorgan's downgrade reflects the view that, despite solid underlying performance, the company's shares no longer offer material upside relative to the bank's valuation framework and consensus estimates; the firm nonetheless expects Pirelli to manage its industrial execution and to preserve cash flow and balance-sheet health in the medium term.