On Tuesday, CFRA updated their assessment of Li Auto (NASDAQ:LI), shifting the stock's rating from Sell to Hold and elevating the price target to $50.00, an increase from the previous target of $35.00. The new price target is based on a projected price-to-book (P/B) ratio of 6x for the year 2024, aligning with the company's average P/B from 2020 to 2023. This adjustment comes in light of Li Auto's hybrid electric vehicles (HEVs) gaining increased acceptance in the consumer market.
Li Auto reported significant financial growth with a net profit of CNY5.8 billion in the fourth quarter of 2023, marking a substantial 136% increase in revenue compared to the same period in the previous year, where the net profit was CNY265 million. The firm anticipates that Li Auto's revenue will continue to grow at a rate exceeding 90% in the years 2024 and 2025, driven by the introduction of new models.
Despite the positive outlook on revenue, CFRA maintains a neutral stance on Li Auto's fundamentals. The analyst cites the intense competition within China's electric vehicle market as a limiting factor for average selling price improvements. Moreover, the high costs associated with research and development, coupled with marketing expenses, are expected to remain significant, particularly as Li Auto advances its multiple product strategy in 2024.
CFRA remains cautious regarding the company's profitability momentum due to these market challenges. However, the analyst acknowledges the improvement in vehicle and gross margins in the fourth quarter of 2023. This improvement has led to the revised Hold rating on the stock.
The firm has also updated its earnings per share (EPS) projection for Li Auto, raising the 2024 forecast to CNY14.30 from the previous CNY11.30 estimate. Furthermore, CFRA has initiated an EPS forecast for 2025 at CNY19.90, reflecting an optimistic view of the company's earnings potential in the near future.
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