Stellantis (STLA.US) shares and bonds hit a record low, and Wednesday's earnings report became a battle to defend CEO trust

The Zhitong Finance App learned that Stellantis (STLA.US) will usher in an opportunity to calm the continued decline in stock bonds this week. The Jeep and Peugeot automaker is about to release earnings reports, and the market is full of doubts about its loss reversal plans. The company's stock price has fallen by more than 60% since this year, to a record low; Stellantis bonds have also fallen to an all-time low. CEOs must send a strong signal of reassurance when announcing results on Wednesday to stabilize market confidence.

Investors' confidence in CEO Antonio Filosa (Antonio Filosa)'s strategy to revive the troubled group has been eroded by continued Chinese competition, weak European pricing and high raw material costs, leaving investors with more questions than answers.

Fabio Caldato, portfolio manager at Acomea Sgr, who holds shares in the company, said, “The market now firmly sees Stellantis as a 'see is real' story.” “Limited visibility, combined with the challenges faced by the entire industry, makes it difficult to trust the guidelines given by the company and the 2030 plan announced in May.”

As far as the results themselves are concerned, analysts are far from optimistic. According to the average estimates of 12 analysts compiled by the market, net revenue for the third quarter is expected to fall to 36.4 billion euros (41 billion US dollars) from 37.2 billion euros in the same period last year. More worrying for many, however, is that negative free cash flow is expected to reach 3.4 billion euros.

HSBC Holdings analyst Michael Tyndall wrote in the October 23 report: “Given weak production, the scale of cash consumption is an unknown risk.”

Tyndall said he is concerned about “America's potential demand for inventory removal and the cash outflow needed to restore substantial competitiveness.” He gave the stock a “reduced holdings” rating. The target price of €3.30 is the lowest among all analysts tracking the market, which means there is still about 10% downside compared to the current level.

Other analysts are equally skeptical. Barclays analyst Henning Cosman believes Stellantis is the most difficult story to execute in the European automotive industry.

Cosman wrote in this month's report that he expects “as early as” the fourth quarter to see evidence of sustainable improvements in investment logic, and believes that some of the basic assumptions in the company's medium-term plan are “relatively difficult to negotiate”.

This doubt has not been ignored by short sellers. As of Thursday, Stellantis was lending shares — an indicator of bears' interest — accounting for about 19% of its freely tradable shares, the highest level in more than a decade, according to S&P Global Market Intelligence data.

Not everyone is so bearish. Deutsche Bank's Christoph Laskawi said he expects weak performance this quarter, but he doesn't think Stellantis will change its full-year outlook, and the overall guidance is still expected to be achieved.

For some credit investors, this round of sell-off has come to an end. The company's hybrid bonds — a form of debt that costs more, ranks lower in the company's borrowing structure, and is treated as 50% equity by credit rating agencies — now yield over 11% to the first redemption date, compared to 6.875% when issued earlier this year.

“While restoring positive free cash flow is certainly challenging, we don't think Stellantis's balance sheet should price a full-blown financial crisis, and current bond prices suggest this,” Acomea's Caldato said. He recently bought some perpetual bonds.

Despite this, even the most optimistic people acknowledge the need for caution. “To get stock prices back up, investors need to see evidence that the path back to positive free cash flow is real and accessible,” Caldato said.