Investing.com -- Jefferies has revised its outlook on European auto parts stocks, upgrading Michelin (EPA: MICP ) to Buy while downgrading Continental (ETR: CONG ) to Hold.

The broker’s analysts cited the market’s cyclical nature, particularly in key sectors like agriculture and construction, as a basis for the reshuffle.

“Specialty tyres are high margin, highly consolidated & with volumes close to cycle lows," analysts led by Michael Aspinall wrote in a note.

“In conjunction with this specialty market review we upgrade Michelin to Buy & Downgrade Conti to Hold,”

Michelin stands out with its significant exposure to specialty tyres—used in mining, off-road, and aircraft applications—and could benefit from a rebound expected in agricultural and construction equipment sales later in the year.

The company holds a commanding 46% share of the global €13bn specialty tyre market.

Continental, on the other hand, trails in this segment with around 4% market share and a heavier reliance on the automotive original equipment market, where risks remain elevated.

The analysts pointed to limited further upside in the auto recovery and a valuation that now closely aligns with Michelin.

“The recovery in Automotive has been strong however this leaves less room to improve going forward,” they said, adding that Continental’s valuation discount to Michelin has “closed significantly.”

“In terms of relative valuations Michelin is now at a discount to Pirelli and is almost in line with Conti. At the same time the outlook for the key cyclical component of earnings is improving as we are nearing a trough,” the analysts continued.

Both companies face challenges from subdued mining activity and only gradual recovery in aircraft tyre demand. Still, Jefferies sees Michelin as better positioned due to margin discipline and structural tailwinds like EV penetration and premium tyre growth.

Michelin’s price target was raised to €43, reflecting an upside potential of 28% over the next 12 months, while Continental’s was set at €80, implying a modest 3% increase.