We think the automaker is trading at a compelling discount to our fair value estimate.
11:40 AM | Email Article
No-moat-rated Fiat Chrysler
reported second-quarter earnings per share before special items of EUR 0.69, EUR 0.09 better than the consensus of EUR 0.60 but EUR 0.24 better than the same period last year. Revenue was EUR 27.9 billion, while adjusted EBIT came in at EUR 1.9 billion for a record quarterly margin of 6.7%.
Richard Hilgert is a senior equity analyst for Morningstar.
Product mix was strong and profitability improved across the board in every region, leading to the better-than-expected performance. Management confirmed its 2017 guidance for revenue of EUR 115 billion-120 billion and adjusted EBIT greater than EUR 7.0 billion. The 4-star-rated shares currently trade at a compelling 45% discount to our EUR 18 fair value estimate.
In our opinion, the investment community remains overly skeptical about Fiat Chrysler’s 2018 objectives. We have substantially discounted our Stage I forecast relative to management’s five-year plan ending 2018, forecasting peak revenue and adjusted EBIT of EUR 128.3 billion and EUR 7.6 billion in 2019 versus Fiat Chrysler plan objectives of EUR 136 billion and adjusted EBIT of EUR 9 billion-10 billion in 2018.
The consensus EBIT also peaks in 2019 but at only EUR 7.7 billion, roughly in line with our forecast. Fiat Chrysler's 2017 adjusted EBIT guidance is "greater than EUR 7.0 billion" while our current model forecasts EUR 6.8 billion. Already, consensus estimates have gravitated closer to our estimate, rising to EUR 6.6 billion compared with only EUR 5.9 billion in late January this year. Even so, the consensus price target is EUR 11, representing an eye-opening 39% discount to our EUR 18 fair value estimate.
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