(News Bulletin 247) – The American bank raised its buy recommendation on the stock as well as its price target, rising to 35 euros against 27 euros previously. Goldman Sachs is counting on higher-than-expected profitability and appreciates the company’s shareholder distribution policy.

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Michelin has had a complicated stock market, even if the title has regained some color since the end of 2022. Over one year, the action of the tire manufacturer remains down 3.5% while the CAC 40 wins 8.2%.

The group at Bibendum suffered in particular from disappointments in its cash generation, itself caused by galloping inflation on costs.

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In a note published on Monday, the Goldman Sachs bank notes that the title of the Clermont-based company underperformed the pan-European Eurostoxx 600 index by 5% and its competitors Pirelli and Continental by 7% and 11% respectively.

But the American bank, she judges that Michelin will benefit from “bearing winds” which are not appreciated at their fair value by the market. It therefore raised its buying advice, against “neutral” previously, while raising its target price to 35 euros against 26 euros.

Pricing power

Goldman Sachs estimates that Michelin should be able to generate “segment” operating profit, Michelin’s main indicator of profitability, which corresponds to operating profit restated for certain expenses and certain income, of 3.7 billion euros in 2023, excluding currency effects, versus 3.3 billion euros for the full consensus.

The establishment is more optimistic than its peers on volumes expecting them to be almost stable (-0.5%) against a decline of 1.9% for the consensus.

He expects Michelin’s ability to drive up prices and direct its sales towards more profitable products (the “price-mix effect”) to add more than 1 billion euros to the operating profit of the segments, for compared to that of 2022, with a parallel negative impact of 600 million euros due to inflation.

Goldman Sachs points to the group’s leadership in pricing and believes the company is well positioned to withstand price pressures. Because if consumers can favor less high-end brands, on the replacement market, the risks are limited for Michelin, considers Goldman Sachs.

A powerful brand

Above all, Michelin has an important asset: its quality. “Michelin brand tires are regularly voted best in class by tire magazines in Europe,” notes the bank. She recalls that the firm Brand Finance attributes to the tricolor group the highest brand value among tire manufacturers, at 7.7 billion dollars, against 4.3 billion dollars for Continental and 1.5 billion dollars for Pirelli.

Furthermore “we believe that the payout ratio of 50% [de dividende, NDLR] of Michelin, leader of the sector, and the possibility of making takeovers should also support the title”, anticipates the bank.

Buoyed by the positive opinion of Goldman Sachs, Michelin shares advanced 3% around 4:40 p.m., signing the second largest increase in the CAC 40.