Stellantis: The Former Chrysler Is Now an Overlooked Star
Automotive investors in the U.S. used to focus on the Detroit three: General Motors , Ford Motor , and Chrysler. Then, Chrysler morphed several times in various mergers and is now Stellantis , without any reference to Chrysler in its name.
That’s a shame. “The large base of brands might actually have resulted in greater visibility,” says Pedro Palandrani, director of research at Global X ETFs. “Clearly, the three American marques, Dodge, Ram, and Chrysler, could have helped with this.”
Stellantis (ticker: STLA) is a holding in the Global X Autonomous & Electric VehicleDRVE –2.17% (DRIV) exchange-traded fund. The three largest providers of ETFs in the U.S.—Vanguard, State Street (STT), and BlackRock BLK –1.45% (BLK)—own roughly 5% of Stellantis’ shares outstanding. Those three own almost 20% of both General Motors (GM) and Ford (F).
The U.S. just doesn’t pay much attention to Stellantis. That’s a shame, too, because investors are overlooking a star with strong global market position and a competitive plan to win in electric vehicles.
The lack of fund ownership might be one reason shares trade at a big discount to GM and Ford. Stellantis stock trades for just 3.2 times estimated 2023 earnings per share of about $4.86. Ford and GM stocks trade for about 6.4 times and 5.7 times estimated 2023 earnings, respectively.
Traditional automotive stocks never trade for big multiples. But Stellantis stock is trading at just 70% of its five-year average price/earnings ratio. Ford and GM stocks are trading closer to 80% of their five-year average.
What’s more, the trio is trading at a 70% discount to the S&P 500 index P/E ratio. Over the past few years, the average discount is 65%.
No matter what valuation stats investors look at, Stellantis seems incredibly cheap. But cheapness alone isn’t a reason to buy in. Investors have some concerns about the company.
There is the double whammy of inflation and rising interest rates. Inflation threatens profit margins because costs rise. And rising interest rates threaten new-car demand. Most cars are purchased with financing.
Investors are also concerned about EVs. “Investors continue to believe that Ford’s accelerated F-150 Lightning development and GM’s proposed electric Silverado launch will significantly hurt [Stellantis],” said Morgan Stanley analyst Harald Hendrikse in a recent report. He says those fears are overblown and that Stellantis won’t cede all of its North American truck share to GM and Ford. “We do not think [its] strategy is far behind its peers, as some investors believe.”
Stellantis plans to be all-electric in Europe, and 50% electric in the U.S., by 2030. The goal is to sell roughly five million EVs a year by then.
And the company is planning to build three battery factories to power EVs by 2025. One new location will be in Windsor, Ontario, just across a river from Detroit. Stellantis plans to spend more than 30 billion euros ($32 billion) developing its EVs from 2021 to 2025.
EV perception isn’t the only thing that can go right at Stellantis. Synergies between FCA, the company formed between Italian auto maker Fiat and Chrysler, and later, with Peugeot owner PSA, “are yet to be fully accomplished, which could be a positive tailwind,” Palandrani says.
If Stellantis could close the gap with GM and Ford, its shares could rise some 90%, putting the stock at about $28. That is about $2 north of the average analyst price target on Bloomberg. Even if the stock trades at historical valuation levels, shares would still rise about 50%.
It doesn’t seem like it will take a lot to send Stellantis stock to the moon.