Pirelli shares: Citigroup cuts rating following share price rally

(Il Sole 24 Ore Radiocor)- Selling on Pirelli & C on the Milan Stock Exchange after Citigroup decided to cut its rating from Buy to Neutral. At the same time, the investment bank raised its target price to 7.5 from 7.4 euros. “We are lowering our recommendation to Neutral, but raising the target price to €7.50 following the sharp rise recorded since the start of the year” – a 15 per cent increase – “as we believe the risk/reward ratio is now more balanced”, the experts explain in a report. In particular, the brokers highlight that Pirelli “continues to offer the best exposure in the sector, combined with strong execution capabilities, in the high value-added tyre segment for 18-inch and larger sizes, and we continue to believe that the guidance targets for the 2026 financial year are achievable’. However, “given that our estimates for the second quarter and for the full 2026 financial year are in line with the consensus compiled by Visible Alpha, and in light of the strong performance of the share since the start of the year, we are downgrading our recommendation to Neutral”.

More specifically, the company “continues to stand out for its solid defensive characteristics and a track record of reliable growth in terms of margins and free cash flow, qualities that are now rare in the European automotive sector”. According to Citigroup, should the outlook for European automotive suppliers and manufacturers deteriorate further, these characteristics could enable the share to benefit from a further re-rating, i.e. a revaluation by the market. “The share, however, appears technically overbought, with valuations now more balanced and estimates broadly in line with the consensus.” The next catalyst will be the publication of the second-quarter 2026 results: “following a 17 per cent rise over the last six months, we believe that a solid result is now largely priced in.” In summary, the experts highlight that “following the sharp rise in the share price, we believe the risk/reward ratio is now more balanced looking ahead to the second half of 2026. We continue to regard Pirelli as one of the highest-quality assets in the European automotive sector. However, we believe that in recent months the market has very quickly priced in much of the positive news, which is why we expect the share price to enter a consolidation phase around current levels over the summer”.

Analysts are also focusing on the dispute with the Chinese partner Sinochem. In particular, they cite press reports suggesting that negotiations are under way with Czech investors interested in acquiring a stake of between 10 per cent and 20 per cent in Pirelli, which could be spun off from the current 34.1 per cent stake held by Sinochem. At present, however, no such transaction has been confirmed. “This possible development is consistent with the gradual change in Pirelli’s shareholding structure, whilst Sinochem is under increasing pressure to reduce its influence over the company, both due to the restrictions imposed by Italia’s Golden Power regulations and the growing scrutiny by US authorities over the presence of Chinese capital in sectors deemed strategic”, they explain. “In our view, any reduction in Sinochem’s stake and an increase in Pirelli’s free float would be a positive factor for the investment case on the share.”

A further long-term benefit arising from the recent governance measures adopted is that “Pirelli will accelerate investments in the United States to further localise its manufacturing presence in the country, whilst remaining within the current investment budget, which stands at around 7 per cent of turnover. This strategy should enable the group to reduce the risk associated with cross-border trade flows to the United States – an issue that has become particularly significant following the introduction of tariffs – whilst at the same time capitalising on the strong growth of the US high-value tyre market, a segment in which the Pirelli brand continues to enjoy a strong competitive position”.