Goldman bullish on Fiat Chrysler Automobiles

Goldman Sachs had added Fiat Chrysler Automobiles to its Conviction List, with a price target of €17.5. « The market appears sceptical of FCA’s earnings prospects », regarding US auto cycle (peak), financial leverage and « FCA lagging peers technologically ». « The market significantly underappreciates FCA’s ability to improve its NAFTA price-mix (despite deteriorating US SAAR) via shifting production away from mass-market area and into more profitable vehicles », GS’s analysts write in a report dated Jan 6. They expect the co to generate an average ROIC of 8.9% (from 6.6%) over 2017-2021; co trades on 2017E US GAAP EV/EBITDAP of 2.6x vs 5.5x and 4.3x respectively for General Motors and Ford.

Here’s the valuation model for the co (sum of parts):

Source: Goldman Sachs

Surprisingly, and unless I’m mistaken or did not see it, they don’t explain the reason for taking such a huge discount from SOTP valuation to price target… Maybe because the upside was already huge at 78% ???


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