Analysts have upgraded Fiat Chrysler’s stock rating amid rumors the automaker could spin off its desirable Alfa Romeo and Maserati brands to help rid itself of its significant debt, The Wall Street Journal reports.
A recent report on FCA published by investment research firm Evercore ISI entitled “Have We Gone Mad? Upgrade “Sell” to “Buy”, noted that CEO Sergio Marchionne is the automotive executive most concerned with investor interests, due largely in part to the $232M in FCA stock he owns. Morgan Stanley also made note of the potential value of the Jeep brand, while Berenberg Bank said the automaker could spin off not only Alfa and Maserati, but Magneti Marelli as well.
“Further asset divestments/spin-offs – Magneti Marelli, Maserati – have the potential to make FCA debt-free , which would re-rate the equity meaningfully,” Berenberg analyst Alexander Haissl said in a statement. “However, for the bull case to materialise the U.S. cycle needs to be supportive, as solid cash flows from Chrysler offset cash burn from Fiat’s core business in the past.”
Also giving analysts confidence in the strength of FCA’s stock going forward is the potential of what WSJ called a “Trump boom.” The majority of FCA’s profit is made in the U.S. thanks to vehicles like the Jeep Wrangler and Ram 1500, enabling it to rely less heavily on foreign car sales than many other automakers. FCA’s lack of investment in hybrid and electric vehicles also puts the company in a better position than rival automakers if fuel economy economy standards loosen in coming years.
“FCA remains our top pick. FCA is the closest (manufacturer) under our coverage to a pure-play on the U.S. light truck market, has very little China exposure and may be the biggest beneficiary from any potential scale-back of fuel economy standards,” Morgan Stanley analyst Adam Jonas said in a statement. “Our (€20) target (share price) is based on the unlocking strategic value in our sum of the parts model. In the interim, we expect their 2017 outlook to be potentially very supportive of the near term earnings trajectory. FCA’s margins may be surpassing those of Ford by this time next year. They’ve come a long way.”