Can Porsche prepare for long-term profit?

18 Oct, 2010

Shares in German automotive holding Porsche SE have had a rocky ride this year, taking a beating in January when a group of hedge funds sued for fraud but boosted recently by upbeat sales of its sports cars.
Earlier this week, the group returned to record profitability, increased its dividend and forecast a profit for 2011, which is expected to be the last year of its existence before being absorbed into Volkswagen.
The strong sports car results convinced some investors that the crisis is over, but others are afraid that the enduring debt problems might pressure stock.
"There are considerable uncertainties in the Porsche story but we see the balance of risk-reward clearly positive and expect a higher Volkswagen price to feed through into a higher Porsche price," WestLB analyst Adam Hull wrote.
He trimmed his share price target to 58 euros ($81.57) from 70 euros while reiterating his "buy" recommendation.
"Operating profit of Porsche AG was 1.185 billion euros, surpassing our estimates of 965 million euros. Taking into account the 0.6 billion within the first nine months of the fiscal year 2009/10, the fourth quarter had a margin of 22.7 percent," LBBW analyst Frank Biller wrote, adding that strong performances of the new Panamera and the Cayenne are likely to drive figures over the coming months too.
Eight out of 28 analysts rate Porsche "buy" or "strong buy" according to Thomson Reuters Starmine.
"The uncertainties with respect to the lawsuits still pose a significant risk. We therefore remain cautious and reiterate our sell rating," DZ Bank analyst Jasko Terzic wrote in a note.
Terzic added that his caution was partly due to the fact that Porsche had given no information on its debt status.
Full fiscal year results are due on October 19.
"While we believe that Porsche deserves credit for the sharp recovery in its core operating business, we would feel more comfortable having more information on the capital increase and we still believe the litigation case in the US could weigh on the share price," Nomura analysts say.
In a note published on October 14, they reiterated their share price target of 43 euros and their "sell" recommendation. Nine out of 28 analysts rate Porsche "sell" or "strong sell" according to Thomson Reuters Starmine, while 11 maintain their "hold" recommendation.

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