Fiat Chrysler’s Rally Wins Over Few SkepticsTommaso Ebhardt
Buoyed by plans to spin off Ferrari, Sergio Marchionne of Fiat Chrysler Automobiles NV has supplanted Tesla Motors Inc.’s Elon Musk as the chief executive officer with the car industry’s best-performing stock. Analyst skepticism is as high as the share price.
The 49 percent jump in Fiat Chrysler shares since its New York Stock Exchange debut Oct. 13 reflects a turnaround in Europe, faster sales growth than other automakers and above all investors’ huge appetite for Ferrari, which Marchionne intends to spin off by year’s end. The Italian supercar maker alone may be worth as much as 8 billion euros ($9.1 billion), UBS AG says, or more than half Fiat Chrysler’s market value.
Marchionne, 62, is already viewed by some investors as a miracle worker for pulling Fiat SpA back from the edge of bankruptcy more than a decade ago and acquiring a bailed-out Chrysler on favorable terms. Fiat Chrysler’s shares reflect the glow: They’re priced at about 13 times estimated 2015 profit, a richer valuation than most other major carmakers.
At the same time, Fiat Chrysler is the least-preferred major auto stock among analysts, according to data compiled by Bloomberg, and the percentage of “buy” ratings on the stock has been dropping since November. The company is burning cash, burdened with more debt than rivals and is less profitable, says George Galliers of ISI Evercore, who recommends selling Fiat Chrysler shares.
“Yes, Fiat is run by a genius with a unique focus on shareholder value,” Max Warburton of Sanford C. Bernstein & Co. said in a Jan. 28 report. “Yes, Fiat contains a number of attractive businesses. Yes, some of the growth plan may work. But haven’t expectations got far too high for a company that remains so fragile?”
Warburton sees Fiat Chrysler stock slumping almost 50 percent in the year ahead, justifying his “underperform” rating. A Fiat spokesman declined to comment on analysts’ views on the stock.
The stock rose as much as 3.7 percent to 12.18 euros today in Milan and was up 3.3 percent at 1:32 p.m. in Italy.
At its primary listing in New York, Fiat Chrysler fell 2.1 percent yesterday to close at $13.31, giving the company a market value of $17.1 billion. The 49 percent jump since the U.S. listing compares with a 3.2 percent drop in the same period for Tesla, which has gained 13-fold since its 2010 initial public offering.
Tesla shares peaked in September at about $286, and have since tumbled on slowing sales growth in China, plunging oil prices and a comment by Musk, 43, that the electric-car maker won’t become profitable until 2020.
Marchionne, who has said he will retire at the end of 2018, has four more years to complete the creation of a global carmaker able to compete with General Motors Co., Volkswagen AG and Toyota Motor Corp. His goal is to increase sales by more than 50 percent to 7 million cars in 2018.
Last quarter Fiat Chrysler posted its first profit in Europe since 2007 while Ford Motor Co. and GM posted losses in the region. Fiat Chrysler and its share price also are benefiting from the surge in the dollar, which makes the U.S. business more profitable.
Part of Marchionne’s plan includes freeing Ferrari from its less-profitable parent. Fiat Chrysler plans to sell 10 percent of Ferrari in an initial public offering by the third quarter, and distribute its remaining 80 percent stake to Fiat Chrysler shareholders by the end of 2015. Ferrari Vice Chairman Piero Ferrari owns the other 10 percent.
Optimists say Marchionne can still wring plenty of value out of the company. “Fiat Chrysler is a turnaround story,” said Massimo Vecchio, an analyst at Mediobanca who recommends the stock. “Regardless of macro economy trends, it has internal levers to grow earnings and cash, and assets to fully exploit: Ferrari but also Jeep, Maserati and Alfa.”
Once Ferrari is gone, though, the light will shine ever more brightly on the Fiat and Chrysler brands and a balance sheet that’s currently burdened with 7.65 billion euros in net industrial debt. The current share price values the company at a premium to VW once Ferrari is stripped out, said Warburton. That means a lot has to go right to keep the stock price elevated.
“We struggle to justify the recent runup in FCA’s share price,” he wrote.