This analysis delves into Volkswagen's current market position, arguing that the stock is significantly undervalued despite short-term challenges. It highlights the company's robust recovery potential driven by strategic restructuring and improved operating margins, positioning it as an attractive investment opportunity.
Unlock the Future: Volkswagen's Path to Revaluation
The Current Market Misperception and Volkswagen's Value
Volkswagen (VWAGY) shares are presently trading at a level that suggests a misinterpretation of its future earnings potential. The market appears to be overemphasizing the anticipated margin compression in 2025, treating it as a permanent structural issue rather than a temporary phase. This perspective overlooks the clear pathway to financial recovery and growth projected for 2026.
Management's Vision for Margin Recovery
Volkswagen's management has outlined a clear strategy to enhance profitability, forecasting an operating margin between 4.0% and 5.5% by 2026. This projection indicates a substantial recovery in earnings before interest and taxes (EBIT) of approximately €4 billion to €9 billion. Such an improvement would significantly re-rate the stock, potentially valuing it at 4 to 5 times its 2026 earnings.
Restructuring as a Key Catalyst for Growth
The core driver behind this anticipated margin normalization is a comprehensive restructuring initiative. This includes significant cost-cutting measures, such as a potential reduction of 100,000 jobs, alongside efforts to optimize operational efficiency. These actions are expected to contribute an additional €3 billion to €6 billion to the company's EBIT, propelling its return to healthy profitability levels.
Attractive Returns for Long-Term Investors
For investors, the current valuation presents a compelling opportunity. Our 12-month base case for Volkswagen's preferred shares is an price target of €95 to €110, plus dividends. This forecast suggests a total return potential of 30% to 45%, even with conservative valuation multiples. This indicates a strong belief in the company's ability to execute its turnaround strategy and deliver substantial value to shareholders.
