Kepler Cheuvreux has cut its recommendation on Schaeffler to Hold from Buy, even as it increased the firms target price to €9.20 from €9. The brokerage said the adjustment in its estimates lifts its target price, but that the scope for further upside is now insufficient to support a Buy rating. Shares of the German auto parts supplier moved lower following the note.
Broker rationale
In its research, Kepler Cheuvreux noted Schaefflers growing emphasis on diversifying revenue sources beyond its traditional automotive end markets. Management has outlined a strategy to expand into a range of adjacent fields, including humanoid robotics, drones and autonomous systems, defence applications and space. The company is targeting roughly 10% of group revenue from these new areas by 2035, the broker said.
The brokerage judged Schaeffler to be well positioned to apply its existing technologies into these adjacent markets. It pointed to the companys broad portfolio of mechatronic and motion-control technologies as enabling the extension of existing products and expertise into new applications with relatively limited incremental investment.
Timing and scale of new growth
Kepler Cheuvreux cautioned that most of the growth initiatives flagged by management remain at an early stage of development. As a result, the broker expects that material revenue contributions from those areas are unlikely before the end of the decade, with defence noted as a potential exception. The note also observed that many of the required products for these markets, such as actuators and electronics, can be produced using Schaefflers existing manufacturing infrastructure.
Financial forecasts
Reflecting first-quarter results and downward revisions to its China estimates, Kepler Cheuvreux adjusted its near-term profit outlook. The broker now expects an adjusted EBIT margin of 4.5% and adjusted EBIT of 1.07 billion, up from its prior forecasts of 4.3% and 1.03 billion respectively.
Free cash flow expectations were also raised, to 194 million from 163 million. Kepler Cheuvreux said its forecasts incorporate an assumption of adverse effects stemming from the US-Iran war.
Looking further ahead, the brokerage projects 2028 revenue of 28.3 billion with an adjusted EBIT margin of 7%, equivalent to 1.97 billion, and indicated that it believes the companys mid-term targets are achievable.
Market reaction and outlook
Despite the modest upward revision to the target price, the decision to downgrade to Hold reflects the brokers assessment that the expected upside no longer merits a Buy recommendation. The note underscored the tension between the promise of multiple new revenue avenues and the slow, early-stage nature of their commercialisation. Investors will likely monitor progress in these adjacent markets as well as near-term margin and cash flow developments.
Key details from Kepler Cheuvreuxs note are reflected in the brokerages updated financials and revenue guidance, and in its view of Schaefflers strategic positioning for future growth.