12:47 PM EDT, 08/12/2024 (MT Newswires) -- Stellantis ( STLA ) is facing a "difficult situation" amid potentially weaker H2 volumes, as well as pricing and production pressure from high North America inventories, following a "disappointing" H1, Morgan Stanley said in a note Monday.

As a result, the investment firm said it now expects a full-year 2024 adjusted operating income margin of around 10%, versus more than 11% previously.

Morgan Stanley also lowered its revenue estimates by 10% in 2024 and 5% in 2025 due to expected lower volumes of the company and pricing headwinds across the industry. It also cut its earnings-per-share estimates by 23% and 8% in 2024 and 2025, respectively, due to expected lower revenue generation and the company's lower production, according to the note.

There is a potential upside to volumes if Stellantis ( STLA ) significantly reduces dealer inventories, although this may come at the cost of increased dealer incentives, Morgan Stanley said.

"We think the inventory situation will challenge Stellantis ( STLA ) in [2024] but does not change the equity story. We expect that the merger will continue to drive cost synergies, and note that management has demonstrated its ability to execute so far," Morgan Stanley said.

Morgan Stanley raised its price target on Stellantis ( STLA ) to $28.40 from $20.75 and maintained its overweight rating.

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