Stellantis' Turnaround Potential: Undervalued Auto Giant Poised for Recovery?

The global automotive sector faces headwinds—from supply chain disruptions to the rapid shift toward electric vehicles—but Stellantis (STLA) is positioning itself as a turnaround story worth watching. With operational improvements gaining traction, a compelling valuation, and a dividend yield of 11.41%, the company appears to be a diamond in the rough. Recent analyst upgrades and stark valuation discounts to peers underscore its potential as a contrarian play.

Jefferies' Bullish Call: A Vote of Confidence

Jefferies recently upgraded Stellantis to "Buy", raising its price target to €11.50, implying a 38% upside from its June 19, 2025, closing price of $9.54 (equivalent to ~€8.31 at the day's exchange rate). Analysts highlighted Stellantis' ability to address internal inefficiencies—such as cutting costs and streamlining operations—while maintaining manageable restructuring expenses. This optimism isn't misplaced: the company has already achieved $4.2 billion in annualized synergies since its merger with Fiat Chrysler, with further cost savings expected in 2025.

Valuation: A Bargain in a Premium Sector

Stellantis' stock trades at a P/E ratio of 3.0x, a stark contrast to the sector average of 10.1x. This discount reflects lingering concerns over past underperformance and industry-wide challenges. However, GuruFocus estimates a fair value of $18.06, nearly double the current price, suggesting the market has yet to fully price in Stellantis' turnaround.

The chart above reveals Stellantis' underperformance compared to peers like Tesla or Rivian, even as it executes operational fixes. This divergence creates a compelling entry point.

Dividend: A Safety Net for Investors

With a dividend yield of 11.41%, Stellantis offers one of the highest payouts in the automotive sector. This 11%+ yield is particularly attractive amid volatile markets, providing a cushion against potential downside while the turnaround unfolds. The dividend is also well-covered, with a payout ratio of ~40% of earnings, signaling financial discipline.

Operational Turnaround: Progress and Potential

Stellantis' strategy hinges on three pillars:
1. Cost Efficiency: The "Dare Forward" plan aims to reduce complexity by focusing on high-margin segments like trucks and SUVs, while cutting administrative costs.
2. Electric Transition: Its STLA Medium platform targets affordable EVs, with plans to launch 30 new models by 2025.
3. Global Scale: Leveraging its footprint in Europe, North America, and emerging markets to drive economies of scale.

Recent milestones, such as a 22% increase in EV sales in Q1 2025, suggest these efforts are gaining momentum. Meanwhile, restructuring costs remain manageable, with the company forecasting €2.5 billion in cumulative savings by 2026.

Risks to Consider

• Sector-Wide Challenges: Supply chain bottlenecks and EV competition remain risks.
• Valuation Reassessment: If earnings miss targets, the stock could face further downward pressure.
• Currency Fluctuations: The euro's strength against the dollar (USD/EUR at 0.87 on June 19) impacts revenue for U.S.-listed shares.

Investment Thesis: Buy the Dip

Stellantis' stock is trading at a valuation that doesn't yet reflect its operational progress or growth potential. The Jefferies price target of €11.50 and GuruFocus fair value of $18.06 suggest significant upside. For income-focused investors, the 11.41% dividend yield adds immediate value, while long-term holders could benefit from a valuation re-rating as the turnaround solidifies.

This stark undervaluation relative to peers is a red flag for the market's overreaction to short-term challenges.

Final Take

Stellantis is a stock where patience could pay off. With a 38% upside to Jefferies' target, a dividend yield that outpaces most peers, and operational improvements finally bearing fruit, now may be the time to buy the dip. However, investors should set stop-losses and monitor execution risks closely. For those willing to bet on a turnaround story, Stellantis offers a rare blend of value and growth potential in an otherwise pricey sector.

Actionable Idea:
- Buy: $9.50-$10.00 range for a 12-month target of $16.50 (aligned with Jefferies/GuruFocus estimates).
- Hold: If the stock drifts above $12 due to valuation concerns.
- Sell: If earnings miss expectations or restructuring costs escalate.

Investors seeking a contrarian play in autos should take a closer look at Stellantis—its turnaround could be just breaking through.