The Case for Re-rating Continental Shares Post-Spin-Off and Strategic Restructuring

Continental AG’s strategic repositioning has ignited a debate among investors and analysts about the potential for a significant re-rating of its shares. At the heart of this discussion lies the impending spin-off of its Aumovio business, a move that transforms Continental into a pure-play tire and rubber industrial goods company. Barclays’ €100 price target for 2025—aligned with UBS’ bullish stance—reflects a conviction that this structural shift will unlock hidden value, particularly as the company sheds lower-margin divisions and focuses on core competencies.

Value Unlocking Through Strategic Divestitures

The Aumovio spin-off, scheduled for September 18, 2025, is a pivotal catalyst. By separating its automotive supply business, Continental aims to streamline operations and enhance shareholder value. Analysts argue that the spin-off will eliminate the drag from Aumovio’s 12% EBIT margin, which lags behind the tire division’s double-digit performance [1]. This transition is expected to simplify the capital structure, enabling the new entities to pursue tailored capital allocation strategies and reduce operational complexity.

Barclays’ €100 price target hinges on the assumption that the spin-off will reinvigorate investor sentiment. The firm’s rationale, while not explicitly detailed in public filings, aligns with broader industry trends. For instance, Continental’s Q2 2025 results demonstrated resilience, with an adjusted EBIT margin of 8.7% and net income of €506 million, driven by cost-cutting measures and pricing adjustments [2]. Post-spin-off, the company’s focus on tires and ContiTech is projected to boost margins further, as highlighted by Citi’s “Buy” rating and €86 target [4].

Sector-Specific Catalysts: Sustainability and Innovation

The tire industry is undergoing a transformation fueled by sustainability and technological advancements. Continental’s pivot to a pure-play model positions it to capitalize on these trends. The company is integrating bio-based polymers, recycled rubber, and AI-driven design tools to reduce environmental footprints—a shift that aligns with regulatory pressures and consumer demand for eco-friendly products [3]. These innovations not only enhance operational efficiency but also create a moat against competitors like Michelin and Pirelli, which face similar margin pressures.

Moreover, the spin-off is expected to accelerate R&D focus. Continental’s 3% reduction in R&D spending in 2025, while seemingly counterintuitive, reflects a strategic reallocation of resources toward high-impact projects such as triboelectric tires and 3D printing [4]. This focus on cutting-edge technologies could differentiate the company in a sector where margin compression has historically been a challenge.

Performance Outperformance and Market Positioning

Continental’s stock has already outperformed both the DAX and its peers in 2025. Year-to-date, the stock has surged 34%, compared to the DAX’s 20.88% gain and the Auto-Tires-Trucks sector’s -8.4% decline [1]. This divergence underscores investor confidence in the company’s strategic clarity. The Zacks Consensus Estimate for full-year earnings has improved by 1.8% in the past quarter, reflecting optimism about the spin-off’s execution [1].

However, skepticism persists. Bernstein’s downgrade to “Underperform” argues that the market has already priced in the spin-off’s value, with the enterprise value at €22.5 billion exceeding its estimated fair value of €20 billion [3]. The firm also notes that Continental’s margins remain below historical averages, a concern echoed by Morgan Stanley’s cautious stance [2]. Yet, these bearish views contrast with the broader analyst consensus, which maintains a 13.06% average upside potential from current levels [3].

Conclusion: A Compelling Long-Term Case

While short-term risks—such as tariff pressures and margin volatility—remain, the long-term case for Continental is robust. The Aumovio spin-off, coupled with a focus on sustainability and innovation, creates a compelling narrative for value creation. Barclays’ €100 price target, supported by UBS and Citi, reflects a belief that the market will re-rate the stock once the structural changes are fully realized. For investors, the key is to balance near-term uncertainties with the transformative potential of Continental’s strategic overhaul.

As the September 2025 spin-off approaches, the company’s ability to execute its plans will be critical. If successful, Continental could emerge as a leaner, more agile entity, well-positioned to capitalize on the evolving dynamics of the tire industry.

Source:
[1] Continental | Results first half 2025 [https://www.continental.com/en/press/press-releases/results-first-half-2025/]
[2] Earnings call: Continental AG outlines spin-off plans and financials [https://uk.investing.com/news/stock-market-news/earnings-call-continental-ag-outlines-spinoff-plans-and-financials-93CH-3639477]
[3] Bernstein downgrades Continental, says margins lag peers [https://www.investing.com/news/stock-market-news/bernstein-downgrades-continental-says-margins-lag-peers-66-price-target-4221086]
[4] Continental AG Shares (CON.DE) On Watch - Aumovio Spin-Off Sparks Optimism [https://www.asktraders.com/analysis/continental-ag-shares-con-de-on-watch-aumovio-spin-off-sparks-optimism/]