Morningstar | Volkswagen Reports 2018 Preliminary Headline Results: Maintaining EUR 230 FVE
No-moat-rated Volkswagen, maker of Audi, Bugatti, Lamborghini, Porsche, SEAT, Skoda, and Volkswagen automobiles, plus MAN, Scania, and Volkswagen commercial trucks, reported preliminary headline numbers for full-year 2018. The company usually issues year-end headline financial results in a press release at the end of February that contains very few details then provides a full set of financial statements in a presentation to investors in the second week of March.Consolidated revenue, which includes financial services, increased 2.7% to EUR 235.8 billion compared with EUR 229.5 billion last year. Record volume of 10.8 million units represented a 0.9% increase versus the prior year delivery volume of 10.7 million. Revenue and volume were both in line with our expectations. However, operating profit excluding special items was at an all-time record for the group at EUR 17.1 billion, resulting in a 7.3% operating return on sales. The operating result was only 0.4% higher than last year and represented a 10-basis-point contraction in margin. While operating leverage and price/mix were favorable, margin was negatively affected by emission regulations in Europe and negative currency translation.
Once we have the full set of financial statements and roll our DCF model forward, we think our fair value estimate could increase by around 2% due to the time value of money component in our model. We continue to forecast a 4.7% normalized sustainable midcycle margin, 100 basis points below Volkswagen's 5.7% 10-year historical median to reflect increased spending for powertrain electrification and autonomous technologies. Even so, this 4-star-rated stock is attractively valued, currently trading at a 34% discount to our EUR 230 fair value estimate.
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