Morgan Stanley Paints Bleak Outlook for Euro Autos
Shares in European automotive companies traded lower Thursday after Morgan Stanley revised down its ratings and price targets for most of them.
The companies' balance sheets are "wrong," because the deterioration in the sector has been so sudden that "it renders current levels of net liquidity irrelevant and misleading to the construction of valuation for share prices," Morgan Stanley analysts wrote in a research note.
Although auto shares look attractively valued when using levels of liquidity from the first half of the year or from the third quarter, this masks the collapse of net cash positions expected in the sector for the fourth quarter and over the next two years, the bank's analysts added.
Morgan Stanley cut its price targets for Fiat, Porsche, BMW, Daimler, Continental, Michelin, Peugeot and Volkswagen by almost half in some cases.
It also downgraded Fiat to 'underweight' from 'overweight' and Porsche to 'underweight' from 'equal weight.'
The brokerage did, however, raise Renault to 'overweight' from 'underweight'.
"We are cutting price targets across the board and adjusting ratings as we now model in a two-year economic downturn followed by a recovery to normal margins by 2012," said auto-sector analysts at Morgan Stanley .
Fiat's price target was cut to 2.40 euros from 9 euros; BMW to 15 euros from 29 euros; Daimler to 16 euros from 28 euros; Volkswagen to 28 euros from 50 euros; Peugeot to 17 euros from 38 euros; Continental to 13 euros from 15 euros and Michelin to 25 euros from 38 euros.