EUR 850.00 For Business Accounts Only

Morningstar | Market Has Aggressively Punished Fiat Chrysler

The market has aggressively punished no-moat-rated Fiat Chrysler's valuation owing to incredulity over management's five-year plan. Global expansion of the Jeep, Maserati, and Alfa Romeo brands, as well as further development of the Ram brand, richens the product mix and bolsters operating leverage. The scale of the combined entity is around 5 million vehicles, making it the seventh-largest car company in the world.In 2018, management issued new five-year plan objectives. In 2022, the final year of management's plan, revenue is forecast at EUR 157 billion versus EUR 110 billion reported in 2018, the first year of the new plan. The company expects 2019 adjusted EBIT of more than EUR 6.7 billion for an adjusted EBIT margin above 6.1%. In 2022, management targets adjusted EBIT and margin of EUR 13 billion-16 billion and 9%-11%, respectively. Additionally, plan guidance forecasts a net cash position in 2020 of EUR 20 billion, up from net cash of EUR 1.9 billion at the end of 2018.As a market leader in Brazil (low 20s share), Fiat will benefit from a rising middle class. However, the company was late to Russia, India, and China and lags already-established competitors' market shares. The performance of Jeep, Alfa Romeo, and Maserati in the Chinese market has been disappointing. Even so, we expect Fiat to participate in the above-industry-average growth in emerging-market and Chinese demand.We applaud management's efforts to unlock shareholder value and focus corporate resources on the assembly and marketing of automobiles with the divestiture of the Magneti Marelli automotive-parts business. The company expects the sale to Calsonic Kansei to close in the second quarter for EUR 6.2 billion, subject to certain adjustments. Management expects to make an extraordinary dividend payment to shareholders of EUR 2.0 billion with the proceeds from the sale.