Stellantis: An Undervalued Automotive Giant with a Stellar Brand Portfolio
Stellantis N.V. (STLA) is a leading global automaker formed in 2021 from the merger of Fiat Chrysler and Peugeot S.A. It owns 14 renowned vehicle brands including Jeep, Dodge, Ram, Fiat, Alfa Romeo, Peugeot and Citroën.
Stellantis has a strong global presence spanning Europe, North America, South America and the Asia Pacific region. In 2021, it shipped over 6 million vehicles and generated €152 billion in revenues with adjusted operating margins of 11.8%.
Financial Performance
Stellantis has maintained robust profitability with its vehicle shipments recovering strongly in 2021 and 2022 after pandemic related disruptions. For the first 9 months of 2022, revenues grew 18% year-over-year to €134 billion. Its net industrial cash flow for the same period topped €10.8 billion, reflecting the cash generating ability of its streamlined merged entity.
The balance sheet remains solid with €61 billion of gross liquidity including over €50 billion in cash, providing Stellantis financial flexibility for new investments.
Competitive Positioning
Stellantis enjoys leading market share across key regions in pickup trucks, light commercial vehicles and luxury sports cars. Further, its rich portfolio of iconic brands offers wide exposure across vehicle segments and price points.
The merger has also unlocked over €5 billion in annual cost synergies via platform optimization and rationalization of R&D budgets and manufacturing capacity.
Long-term Growth Outlook
Stellantis is making over €30 billion in electrification investments by 2025, targeting over 70% low emission vehicle sales in Europe and 40% in the U.S. by 2030.
Its strategy centers on four new BEV-focused vehicle platforms, battery manufacturing JVs and charging infrastructure tie-ups.
Given execution thus far on merger integration and financial targets, Stellantis appears well positioned to transition to the EV future while maintaining industry leading profitability.
In 2021, Stellantis generated over €152 billion in revenues and €13.4 billion in adjusted operating income. For the first 9 months of 2022, revenues have already exceeded €134 billion.
With a current market capitalization of €43 billion, Stellantis trades at just over 3x its 2021 earnings.
If Stellantis can maintain its profitability at 2021 levels going forward, an investor could recoup their investment in around 3 years.
Stellantis also has a very strong balance sheet, with €61 billion in gross liquidity including €53 billion in cash as of Q3 2022. This provides ample financial flexibility to fund new investments and endure any potential downturns.
Many automobile companies historically have traded between 5-10x earnings on average. Applying a conservative 7x multiple to Stellantis’ 2021 earnings leads to a potential valuation of over €90 billion, implying over 100% upside from current levels.
On a DCF basis as well with reasonable cash flow projections and discount rates of 8-12%, the potential upside in STLA stock appears substantial over a 2-3 year period.
While risks around execution exist as is the case with any merger, the valuation gap to intrinsic business value appears to provide a compelling margin of safety at current prices.
As merger synergies get realized over coming years, earnings and cash flows should improve further, making the risk-reward tradeoff quite favorable for long-term investors.
With improving demand outlook, solid finances and excellent long-term positioning, Stellantis represents an attractive investment opportunity for auto investors. At under 5 times forward earnings, valuations remain undemanding.