Barclays’ Kristina Church expects the automobile sector to witness volatility following Brexit.
Church downgraded the rating on Fiat Chrysler Automobiles NV FCAU from Overweight to Underweight, while lowering the price target from $10.00 to $5.50.
“In an environment where US earnings quality is under pressure and European demand likely less robust than prior forecasts, FCA could end-up being the least attractive OEM to own,” the analyst mentioned.
Following Brexit, European growth, which had earlier been expected by several investors to be the only major region to see meaningful upside opportunity, now appears set to be volatile at best going into 2017.
According to the Barclays report, “Excess liquidity and access to the ECB's funding programme, might keep volumes stronger for longer, and on the whole these are stronger businesses than in the last downturn.”
While the weak euro might particularly boost earnings for German OEMs in 2017, Church believes the overall uncertainty regarding the macro and political outlook could pressure demand.
“For global investors we note US suppliers now trade at a discount to their EU peers,” the analyst added.
At time of writing, Fiat Chrysler was down 2.29 percent in Wednesday's pre-market session, trading at $5.55.
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