FRANKFURT -- Volkswagen's cautious guidance for 2005 profits, given buffeting headwinds in tough markets, prompted some analysts to cut their earnings estimates for VW on Thursday.
But others said VW was still their preferred turnaround play for this year in a struggling European car sector, placing their trust in star manager Wolfgang Bernhard -- who was hired last year to resuscitate the core VW brand.
Morgan Stanley cut its 2005 and 2006 earnings estimates for the German group, citing adverse competitive and economic factors that warranted keeping its "underweight" recommendation for the stock.
It lowered its 2005 earnings per share estimate to 2.20 euros ($2.95) from 2.40 ($3.22) and reduced its 2006 view to 3 euros ($4.02) from 3.10 ($4.16).
Morgan Stanley also said prospects for VW's China profits "remain a significant concern," suggesting that joint ventures there would lose about $67 million in 2005 as market share slips.
On Tuesday, VW reiterated operating profit would improve in 2005 but cautioned that "the extent of this improvement depends on external factors that cannot be predicted at present." CEO Bernd Pischetsrieder also said first-quarter operating profit would not be satisfactory.
J.P. Morgan chopped its VW 2005 earnings per share estimate by 14 percent to 2.9 euros ($3.89) and its 2006 estimate by 11 percent to 4.1 euros ($5.50), adding in a note that the stock's valuation looked fair.
"We would rather look to other names like Renault for quality or DaimlerChrysler for restructuring upside," analyst Philippe Houchois wrote.
CORE VW BRAND
German bank WestLB also cut its earnings estimates for this year and next and dropped its price target to 38 euros ($51) from 40 euros ($54).
"The next catalyst for the shares could be a presentation from Dr. Bernhard on the future of the VW brand group. However, this will probably not take place before the second half of this year," analyst Lars Ziehn said in a research note.
Bernhard made a name for himself helping to turn around the Chrysler group but left DaimlerChrysler last year after a management shakeup robbed him of his chance to run the premium Mercedes-Benz car group just days before he was to start.
In the upbeat camp, Credit Suisse First Boston raised its VW price target to 47 euros ($63) from 41 euros ($55), saying VW's restructuring was gaining traction and credibility.
CSFB upgraded its earnings per share forecast for VW to 2.94 euros ($3.94) from 2.71 euros ($3.64) for 2005 and started its 2006 estimates at 4.12 euros ($5.53) per share.
Bank Sal. Oppenheim raised its VW stock rating to neutral from reduce with a fair value estimate of 37.90 euros ($51).
"The expected positive unit sales performance starting in Q2 should be suited to outweigh the persisting threats" from a weak dollar and pricing pressure, it said.