Launching New Models Like Dodge Daytona Will Expand Market Reach And Improve Future Competitiveness

Key Takeaways

• Stellantis is enhancing market reach with diverse product launches and strategic regional empowerment, potentially boosting future revenues and competitiveness.
  
• Focus on profitability, efficient inventory management, and powertrain diversification could improve cash flow, net margins, and earnings.
  
• Strategic risks and market share decline in key regions may hamper revenue growth, while geopolitical uncertainties and financial challenges could impact profitability and cash flow stability.

Catalysts

Engages in the design, engineering, manufacturing, distribution, and sale of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, mobility services, and production systems worldwide.

• Stellantis is leveraging product launches, with 20 scheduled for 2024 and 10 for 2025, including key models like the Dodge Daytona, Jeep Wagoneer S, and Citroën C3 Aircross. This is expected to expand their market reach and potentially increase future revenues.
  
• The company is focusing on profitability and ensuring top-line growth translates into profits, which could positively affect net margins and earnings by emphasizing profitable growth, rigorous execution, and efficient capital allocation.
  
• By reducing and better managing inventories, especially in the U.S., Stellantis is positioning itself for a more efficient production schedule in 2025, which may improve industrial free cash flow and working capital management.
  
• Stellantis is expanding its powertrain offerings, including hybrids, bi-hybrids, and combustion engines, to appeal to a broader customer base and adapt to diverse regional preferences. This diversification could bolster revenue streams and potentially stabilize or enhance net margins.
  
• Strategic regional empowerment and a strengthened dealer trust might boost sales, facilitate regional scalability, and improve overall competitiveness, leading to enhanced revenue prospects and stronger earnings in the future.

Stellantis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Stellantis's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 5.5% in 3 years time.
• Analysts expect earnings to reach €9.7 billion (and earnings per share of €3.45) by about March 2028, up from €5.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €12.0 billion in earnings, and the most bearish expecting €8.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.9x on those 2028 earnings, down from 6.4x today. This future PE is lower than the current PE for the GB Auto industry at 11.2x.
• Analysts expect the number of shares outstanding to grow by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.31%, as per the Simply Wall St company report.

Stellantis Future Earnings Per Share Growth

Risks

• The strategic risk associated with empowering regional operations may lead to inconsistent execution and decision-making, potentially affecting revenue growth and market positioning.
  
• The company's recent decline in market share, particularly in the U.S. and Europe, signals potential challenges in recovering ground, which could impact future revenues and profitability growth.
  
• The reliance on aggressive product launches to regain market share poses execution risks, which, if not managed well, could adversely affect overall profitability and financial results.
  
• Ongoing geopolitical and tariff uncertainties, especially regarding USMCA tariffs, could lead to increased costs and impact net margins if trading conditions become less favorable.
  
• Financial risks due to higher restructuring costs, impairments, and potential instability in working capital management might affect the company's ability to generate consistent free cash flow.

Valuation

• The analysts have a consensus price target of €14.354 for Stellantis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €23.0, and the most bearish reporting a price target of just €9.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €176.5 billion, earnings will come to €9.7 billion, and it would be trading on a PE ratio of 5.9x, assuming you use a discount rate of 11.3%.
  
• Given the current share price of €12.36, the analyst price target of €14.35 is 13.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.