The One Automobile Stock That Value Investors Should Own Right Now – Fiat Chrysler Automobiles NV (FCAU)

Johnny HopkinsStocks2 Comments

One of the cheapest stocks in our All Investable Screener, (which you can subscribe to here), is Fiat Chrysler Automobiles NV (NYSE:FCAU).

Fiat Chrysler Automobiles N.V., (Fiat Chrysler) together with its subsidiaries, designs, engineers, manufactures, distributes, and sells vehicles, components, and production systems.

The company operates through six segments: NAFTA, LATAM, APAC, EMEA, Maserati, and Components. It provides passenger cars, light trucks, and light commercial vehicles under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, and Ram brand names; and luxury vehicles under the Maserati brand, as well as after-sales services and parts under the Mopar brand.

A quick look at Fiat Chrysler’s share price history (below) over the past twelve months shows that the company’s share price has been smashed from a high of $14.46 on December 29, 2015 to just $7.70 today. That’s a drop of 46.75%.

(Source: Google Finance)

(Source: Google Finance)

In fact so severe was the pummeling that the share price is now up just 29% higher than its 52 week low of $5.45 on July 6 earlier this year.

The reason for the beating was that Fiat Chrysler decided to spin-off its former crown jewel, Ferrari NV, and investors didn’t like it.

Fiat Chrysler distributed its 80% stake in Ferrari to shareholders and ending 30 years of exclusive control over the maker of the iconic cars that on average sell for about €250,000 (about $273,000).

I believe the spinoff was the correct move for Fiat Chrysler and that the stock has been unduely oversold. With the spinoff completed, Fiat Chrysler Chief Executive Sergio Marchionne is now able to concentrate on his ambitious growth plan to 2018 that calls for €48 billion in investments and big gains for the Jeep and Alfa Romeo brands.

Here’s what’s been happening recently at Fiat Chrysler:

In Italy, Fiat Chrysler outperformed the industry in October, with sales up 12.4% to more than 41,400 vehicles (industry up 9.75% to 147,000 vehicles). Group market share was 70 basis points higher at 28.2%.

For the ten months year-to-date, Fiat Chrysler posted unit sales of nearly 450,000 vehicles, an increase of 19.5% over the same period in 2015 (+16.7% to 1,553,000 vehicles for the industry). Market share was up 70 basis points year-over-year to 28.95%.

For the major models, the Fiat Panda and 500, the Fiat 500X and Jeep Renegade, Fiat Qubo and Doblò, and Fiat 500L continued to dominate their respective segments. The Fiat Tipo and Lancia Ypsilon were also among the leaders in their segments.

Fiat posted October sales of 29,600 vehicles, a year-over-year increase of 6.5%, with market share at 20.2%. Contributing to this result was the BE-FREE initiative which, following successful launch with the Fiat 500, will be introduced on the Fiat Tipo range in November. This new mobility offer enables families to enjoy the full new car experience on some of Italy’s most popular models without having to dip into their savings.

Year-to-date, brand sales totaled more than 328,800 vehicles (+18.4% year-over-year) with market share 30 basis points higher at 21.2%.

All major models posted another strong monthly performance. The Panda and 500 continued to dominate the Italian A segment, the 500X and 500L were once again among the best-selling models in their respective segments, the Tipo has firmly established itself among the leaders in the C segment and the Qubo and Doblò were the best-sellers in the multispace segment.

Lancia posted October sales of nearly 5,400 vehicles (+29.85%) and share increased 60 basis points to 3.7%. Year-to-date, brand sales totaled 57,000 vehicles (+19.0% year-over-year), accounting for a 3.7% share of the market. The Ypsilon continued as one of the best-selling B segment vehicles.

Alfa Romeo posted October sales of nearly 3,000 vehicles, representing a 31.3% year over-year increase. Market share was 30 basis points higher at 2.0%.

Year-to-date, brand sales totaled 30,000 vehicles (an increase of nearly 16.0%) and market share was 1.9%. This significant year-over-year increase was primarily due to strong sales growth for the new Giulia.

Jeep posted another strong monthly performance, with sales up 31.9% to nearly 3,400 vehicles and market share 40 basis points higher at 2.3%.

For the year-to-date, brand sales in Italy totaled 33,900 vehicles (+37.15% over the same period in 2015), with market share up 30 basis points to 2.2%. Results were driven by the Renegade, which continues to dominate its segment together with the Fiat 500X.

In the most recent Q3 2016 financial report, the company stated:

Fiat Chrysler reports record third quarter results with Adjusted EBIT of €1.5 billion, up 29%, Adjusted Net Profit of €740 million and Net Profit of €606 million. Group Adjusted EBIT margin of 5.6%, up 130 bps. Full-year guidance is raised.

  • Worldwide combined shipments(1) of 1,123 thousand units, substantially in line with prior year; Jeep combined shipments(1) up 3%
  • Net revenues of €26.8 billion, in line with Q3 2015
  • Adjusted EBIT increased 29% to €1,500 million, with improvement in all segments except LATAM; EBIT was €1,341 million as compared with €225 million in Q3 2015
  • Adjusted Net Profit increased over three-fold to €740 million; Net Profit of €606 million, up €1.0 billion from prior year
  • Net industrial debt increased €1.0 billion from June 2016 mainly due to normal working capital seasonality
  • Market share in U.S. increased to 12.5%, up 30 bps, and in Europe to 6.1%, up 40 bps; remained market leader in Brazil with 18.6% market share

1  Combined shipments include all shipments by the Group’s unconsolidated joint ventures, whereas consolidated shipments only include shipments from the Group’s consolidated subsidiaries.

Global Expansion

The company had a record Q3 2016 driven by continued strong performance in NAFTA (U.S., Canada and Mexico regions) and Components with significant improvement in APAC (Asia and Pacific countries), Maserati and EMEA (Europe, Russia, Middle East and Africa).

NAFTA margins increased to 7.6% from 6.7%. Maserati returned to double-digit margin at 11.8% and LATAM (South and Central America, excluding Mexico) is at nearly break-even with continued difficult market conditions.

This is a company that is clearly focused on global expansion into emerging markets such as China and India. This focus will lead to continued growth with expansion of China’s middle class.

Fiat Chrysler’s push into India involves a change in strategy where vehicles will be sold through the group’s multi-brand dealerships that has been successful in global markets. Fiat Chrysler will gradually transition a significant chunk of its existing dealerships into a multi-brand dealership which will sell all the three brands — Fiat, Jeep and Abarth from the same showroom.

Recent Trend

While I’m not a big believer in technical analysis, I do use one very simple moving average (below) to give me an idea of the sentiment towards a particular stock. I use a combination of the long term trend (200 Day) and the short term trend (50 Day).

You can very clearly see on the graph below that the short term trend (red line) looks set to break up over the long term trend (green line) suggesting that investors may be starting to become interested in Fiat Chrysler again. What’s also evident in the bar chart below the line graph is the actual volume of shares being traded recently. Since the end of October you’ll notice the considerable spike in trading volume indicating that investors may be starting to become bullish on the prospects of Fiat Chrysler.




It doesn’t really matter which metric you use for valuation, the company is cheap. Fiat Chrysler is currently trading on a P/E of 6.3, a P/S of 0.09, a P/B of 0.66, and our preferred ratio, The Acquirer’s Multiple defined as EV/Operating Earnings of 4.22 times. It’s also important to note that the company has a FCF/EV Yield of 9% (TTM).

Fiat Chrysler is a shareholder friendly company focused on global expansion, that is seriously undervalued.

One final point about Fiat Chrysler is that according to, both Bill Nygren of the Oakmark Funds and Mohnish Pabrai of the Pabrai Investment Funds, both own shares in Fiat Chrysler, 24,400,000 and 13,771,930 respectively.

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