MGDDF - Michelin cut to Hold as RBC eyes tire trade-down

Economic uncertainty and normalizing inventory in the tire industry aroused a cautious outlook for Michelin ( OTCPK:MGDDF ) at RBC Capital Markets.

The bank’s analysts indicated that tire inventories appear to have normalized into the close of 2022, impacting pricing power among major brands. Additionally, a “softening replacement market” has sparked a cautious outlook on the overall industry.

“Buyers appear to be delaying switching their tires owing to economic uncertainty (especially in Europe),” the bank’s analysts explained. “Additionally, there was pre-buying by dealers of lower tier tires in 2022 ahead of price increases…we do worry that as a result, there could have been some share shift to lower tier tire brands.”

RBC Capital Market’s team downgraded Michelin ( OTCPK:MGDDF ) to Sector Perform from a prior Outperform rating. A €28 price target was assigned to the stock.

Paris-listed shares of the tiremaker fell 1.89% into the afternoon session in Europe.

Similarly cautious commentary was offered on Continental ( OTCPK:CTTAF ) amid expected margin pressure. A Hold-equivalent rating was maintained on the German tire maker while its price target was trimmed to €57 from €59.

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