Investment firm upgrades Michelin rating despite volumes dip

London - HSBC Global Research has upgraded its rating for Michelin to ‘buy’ based on its outlook for the group’s "pricing, cost discipline, low financial expenses, and share buybacks" – and despite volume weakness.

The upgrade from ‘hold’ followed Michelin's latest tire market volume data - for February – which prompted HSBC Global Research to trim back its 2025 volume estimate by 1%.

With an expected year-on-year dip of 7%, it forecast Q1 to be the weakest quarter due to “tough [competition] in light-vehicle tire markets and still-low demand for truck, construction, and mining tires.”

HSBC Global Research then projects a progressive improvement in volumes during 2025, to come in just 1% below the prior-year level, it explained in a report issued 28 March.

Noting a cumulative 12% market contraction between 2021 and its 2025 estimate, the firm identified speciality tires as the “main negative”: a 9% drop in 2024 to be followed by a 3% decline this year.

“Nonetheless, thanks to strong pricing, mix, and cost control, we expect Michelin's 2025e adjusted EBIT to be 15% above its 2021 levels, and EPS [earnings per share] 23% above,” HSBC Global Research commented.

With regards to US trade tariffs, the report said Michelin’s 80%-plus, US localisation rate made it “the most hedged auto parts supplier under our coverage, after Goodyear.”

Also, the market watcher said that with around 50% of sales from truck tires and industrial activities, Michelin could benefit from incremental infrastructure investments, especially in Europe.