Investing.com -- UBS Global Research in a note dated Wednesday has upgraded Volvo (OTC: VLVLY ) to a 'buy' rating, citing the Swedish truck manufacturer’s strong positioning amid improving market conditions in Europe and North America.

Shares of the company were up 1.8% at 08:58 ET (13:58 GMT).

The brokerage also raised its price target for Volvo’s B shares to SEK 370 from SEK 302, highlighting the company as its top pick in the European truck market.

Analysts at UBS argue that Volvo is best placed to benefit from an anticipated recovery in the European truck market, as its operations in the region contribute nearly half of the company’s total truck division revenue.

While broader market expectations suggest a contraction in European truck deliveries this year, UBS maintains a more optimistic view, estimating flat deliveries instead of the consensus decline of approximately 4%.

This outlook is supported by leading indicators such as freight demand, carrier metrics, and expected European Central Bank rate cuts in 2025, which should bolster investment in commercial vehicles.

In North America, UBS sees Volvo’s newly introduced VNL truck as a key driver of growth. The VNL is manufactured entirely within the United States, which provides an advantage in an uncertain trade environment.

With potential tariff risks affecting competitors with production ties to Mexico, Volvo’s U.S.-based supply chain could help it gain market share in a traditionally stable truck sector.

Additionally, a pre buy cycle ahead of new emissions regulations in 2025 is expected to drive higher demand, further supporting the company’s North American performance.

UBS has raised its earnings estimates for Volvo, forecasting mid-single-digit percentage growth above market consensus for the 2025-2027 period.

The brokerage attributes this to stronger-than-expected performance in the truck segment and positive momentum in the construction equipment division.

UBS expects Volvo’s truck sales to outpace expectations by 4-7% in the coming years, bolstered by improved geographic and product mix as well as pricing power from new product launches.

Despite Volvo’s recent stock price gains, UBS notes that the company continues to trade at a discount to historical valuation averages, even as the truck market enters an upcycle.

The analysts believe that upcoming catalysts, including industry order data and financial results from competitors such as Traton and Daimler (OTC: MBGAF ) Truck, could reinforce its bullish stance on Volvo.

While acknowledging potential risks, such as a weaker-than-expected European economic recovery or a deterioration in freight demand, UBS sees Volvo’s strong market positioning and operational resilience as key factors supporting its upgraded rating.