Investing.com -- Bernstein has upgraded Pirelli & C SPA (BIT: PIRC ) to Market-Perform from Underperform, reversing its December downgrade amid improved clarity on U.S. tariff exposure.
The decision reflects a reassessment of risks tied to Pirelli’s Mexico operations, which had previously been seen as vulnerable to a 25% tariff under the Trump administration’s latest trade policy.
Pirelli, which supplies over half of its U.S. sales from Mexico, had been viewed as the most exposed among its peers.
However, Bernstein now notes that Pirelli’s Mexican plants qualify as USMCA-compliant and are exempt from new tariffs—prompting the brokerage to remove the 0.4x EBITDA valuation discount previously applied to the stock.
“We now remove the previous valuation discount in our Pirelli valuation methodology to account for this,” analysts led by Harry Martin said in a note.
Still, Bernstein remains cautious on governance risks, citing ongoing scrutiny of Pirelli’s Chinese shareholder. The firm maintains a 0.4x discount for governance concerns and highlights the possibility of a “dilutive event for minority shareholders this year.”
Tyremakers more broadly are facing persistent volume weakness in Q1, but the price/mix environment remains supportive.
Tier 1 players, including Pirelli, are expected to offset tariff pressures through price increases—especially as budget rivals importing 100% of their U.S. supply are forced to raise prices significantly.
“We expect all of them can fully mitigate this impact through price,” analysts wrote.
In the broader context, tyre stocks have been pressured by tariff fears despite relatively limited direct exposure.
Bernstein views the recent sell-off as an opportunity for investors willing to look past short-term disruption, noting, “We see today as an attractive entry point for those willing to look through short-term pain.”
The upgrade places Pirelli alongside Continental in the Market-Perform category, while Michelin (EPA: MICP ) and Bridgestone Corp. (TYO: 5108 ) continue to be rated Outperform based on innovation potential and premium segment strength.
Bernstein emphasized, however, that its €5.20 price target for Pirelli remains the lowest on the street—22% below the median.