This automaker can navigate the EV transition better than investors think, Bank of America says

Published Wed, Jul 12 20236:34 AM EDTUpdated Wed, Jul 12 202312:03 PM EDT

There's a buying opportunity in shares of Stellantis as the automaker navigates the electric vehicle transition, Bank of America said. Analyst Michael Jacks upgraded Stellantis to buy from neutral and raised his price target, saying there are more reasons to be positive on the Netherlands-based automaker than investors expect. Stellantis is the parent company of the Chrysler and Ram brands, among others. "OEMs, including Stellantis, have been over-earning on favourable mix and price in a supply-constrained market. With supply chains easing, earnings normalisation seems likely, and consensus already expects a sharp decline in 2H'23 for Stellantis. We think the trajectory may prove more gradual," Jacks wrote Wednesday. STLA 1D mountain Stellantis shares 1-day Of course, there are challenges ahead for Stellantis as it, along with other EU automakers, navigate the EV transition to meet the region's Fit for 55 climate requirements and fight competition from China. There's also a possible auto worker strike in September. Even so, the analyst cited several advantages for Stellantis, including its significant exposure to North America, which benefits from the Inflation Reduction Act, as well as low exposure to China. "That said, we see five key reasons why Stellantis should weather the storm successfully: (1) it's largest profit pool, N. America ( > 55% of EBIT) benefits from the IRA; (2) merger synergies of c€1-1.5bn pa and possibly more in FY23-26E are offsets; (3) it has low exposure ( < 3%) and hence limited dependency on China vs peers; (4) it's EV strategy (platform and batteries) allows for maximum flexibility; and (5) management is alert to these risks and has a clear focus on cost reductions which may prove decisive," Jacks wrote. The analyst raised his price objective on U.S.-listed shares to $21.95 per share from $20.83 per share. The new target implies upside of 22% from Tuesday's close. The stock is already up 26% this year. It rose another 1.8% in the Wednesday premarket. "[We] believe Stellantis can weather the storm, and having already de-rated by 40% vs. 2016-19 levels, that the market is already pricing for worse," Jacks wrote. — CNBC's Michael Bloom contributed to this report.