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What to think of Michelin stock in the long term? Should we invest? Our insight.

Reading Time : 3 minut(s) - | Published on 28-12-2023 14:49 

Michelin: a historic and solid company

Well-known for its Bibendum logo, the Michelin company was born in Auvergne in 1889 (the same year as the inauguration of the Eiffel Tower). It is now one of the 40 largest companies in France in terms of market capitalization.

At the end of the 19th century, the Michelin family business specialized in the production of pads and belts for bicycle brakes and horse-drawn cars. It was while encountering difficulties repairing a bicycle tire that Edouard Michelin came up with the idea of ??creating detachable tires. A revolutionary concept, which was quickly highlighted by the cycling races of the time.

The rise of rubber also helped Michelin to constantly improve its tires. This marked the starting point for the company's exponential growth and the inclusion of innovation as an important part of its identity.

Michelin, whose headquarters are still based in Clermont-Ferrand, has risen in a few decades among the world leaders in tires. Today, the group is established in 18 countries and employs more than 120,000 people worldwide. Thus, there are Michelin factories in France but also in China, the United States, India, Brazil, etc.

Assurance Vie

Michelin stock: a strategy blending innovation and external growth

Michelin's strategy is based on constant innovation and external growth. On one hand, the company constantly improves the technology of its tires and on the other, it acquires other companies with related activity.

The success of Michelin was built from the invention of the removable tire. Over the decades, the company has continued its efforts in research and development. It is credited with the invention of the radial tire, which equips almost all cars today, or the summer/winter mixed tires. Processes, materials, types of tires are thus subject to constant innovation:

- Vehicle tires, from bicycles to Formula 1 (two-wheelers, mining tires, agriculture...),- Aircraft tires,- The largest tires in the world for outfitting XXL construction vehicles,- Uptis puncture-proof airless tires...
The company notably owns the Michelin, BFGoodrich, Kleber, Uniroyal, and Taurus brands.

While tire activity accounts for the majority of Michelin's revenue, the company has long embarked on a diversification strategy. It has thus developed related activities on the theme of the road. These include:

- The Euromaster tire distribution chain,- Online tire sales websites,- Road maps, complemented in the digital age with the ViaMichelin site,- The famous Michelin Guides, the best known of which is the "red guide" that awards stars to restaurants (the green one concerns places to visit).
These two activities are supported by the Michelin Travel Partner subsidiary.

Michelin also expands the scope of its operations by acquiring existing companies. Examples include:

- Flex Composite Group (FCG), which manufactures advanced composite materials, notably for boats,- The specialized tire website "Allopneus",- The restaurant reservation site BookaTable,- But especially companies related to tires such as the French start-up AirCaptif acquired in 2016 or the Canadian manufacturer Camso bought in 2018 for 1.25 billion euros.
This external growth strategy is not new. It is even part of Michelin's DNA: in 1935, the company had already bought Citroën, which was on the verge of bankruptcy. The Michelin-Citroën era is marked by the launch of the Traction, the 2CV, and the DS. The car brand was absorbed by Peugeot in 1975 after numerous adventures.
True to its local roots, Michelin also bought the ASM Clermont rugby club in June 2023.

Michelin stock: revenue and dividend increase

Michelin shares are those of the partnership limited by shares (SCA) COMPAGNIE GÉNÉRALE DES ÉTABLISSEMENTS MICHELIN.

In 2020, following the health crisis, the company announced a 15% decrease in sales, equivalent to 20 billion euros. Despite this, the company continued to generate profits, although divided by nearly three. The company eventually quickly regained its margins, with a higher result in 2021 than in 2019.

In 2022, Michelin had a revenue of 28.59 billion euros in 2022 (+20% in one year), with a profit of 2.01 billion (+8.6%). At the start of 2023, the company's results continued to rise. These increases are notably due to price increases, which more than offset the growth in costs due to inflation.

Apart from the peculiar period in 2020 due to the pandemic, the net income has been improving at least since 2018. The distribution rate fluctuated and stabilized at 44% over the last two years. Therefore, the dividend per share increased, reaching €1.25 in 2022 (compared to €0.50 in 2019), giving a yield of 4.80% (dividend on share price as of 12/31).

For 2023 and 2024, net dividend per share estimates are above 4.5%. Earnings per share could increase by 15% in 2023, then by 4% in 2024 according to analysts. However, these data are estimates and do not constitue any guarantee of yield. As with any investment in the financial markets, nothing is guaranteed and there is always the risk of losing invested capital.

Michelin shares: positive outlook for 2024

The stock price has greatly fluctuated over the past 5 years. Michelin shares first went from €21.68 in 2018 to €36.04 in 2021. Following a continuous increase, the stock plummeted in February 2022 due to the crisis in Ukraine, similar to most other stock market values. While briefly exceeding €38 in January, Michelin's shares consequently plunged to €22 by September 2022.

Since then, the stock is slowly recovering, oscillating between €26 and €30, a cap the stock is still struggling to exceed as of early autumn 2023.

Financial analysts are generally positive about Michelin's stock in the coming months. Although the price is well below its historial high (€102.54 when the company won a $1.7 billion contract with the Pentagon in 2007), the 3-month target is set around €32.8. The consensus comes down to "strengthening" the position.

If we look back, at the end of September 2023, the stock of Michelin has seen a 10% rise over 5 years and a 43% rise over 10 years.