Stellantis Earnings: Negative Free Cash Flow Shock Overdone as Full-Year Guidance Unchanged; FVE Unchanged

A significant negative swing of EUR 9 billion in free cash flow year over year from EUR 8.7 billion to negative EUR 392 million primarily driven by a 40% decline in Group adjusted operating income has taken the market by surprise, evidenced by the sharp share price decline. While the industry outlook remains challenging, we believe the extent of the profitability decline is temporary as Stellantis prepares for more than 20 new product launches in the second half. Pressure on pricing apparent in the second-quarter numbers, however, reflects concern of increased competition that may have longer lasting effects. We maintain our fair value estimate of EUR 36 per share. While we soften our pricing and volume recovery assumptions somewhat, these changes are offset by some of the cost initiatives underway that will support operating margins over the medium term.