4 Reasons Why Stellantis Looks Like A Long-Term Buy
Although many investors in the United States may not immediately know the name Stellantide (STLA 0.07%), they almost certainly know some of the companies in its portfolio, Jeep, Dodge and Ram, which sell some of the most popular vehicles in the United States. Stellantis is also home to some of Europe’s biggest car manufacturers, such as Peugeot, Opel and Fiat, as well as the luxurious Maserati. Stellantis was born in early 2021 when Fiat Chrysler officially completed its merger with the PSA group (the parent company of Peugeot, Opel and others). The combined company is the world’s fourth largest automaker by volume. Here are four reasons the stock looks like a compelling investment opportunity.
Surprisingly low valuation
Even in the broader automotive space, where many automakers are trading at depressed valuations due to concerns over supply chain issues, semiconductor shortages and war in Europe, Stellantis stands out as being cheap. These concerns seem more than justified, as the shares only trade for three times earnings, which is one of the cheapest valuations investors will encounter. For context, major U.S. automakers like Ford (F 3.89%) and General Motors (GM 3.07%) trade at price/earnings multiples of 4.5 and 6 respectively, both of which also represent a steep discount to the broader market. You’re here (TSLA 7.33%), in a class of its own in terms of valuation, shows a P/E multiple of around 90 . This company is not a melting iceberg with declining revenue – in fact, for fiscal year 2021, sales were up 13.6% over 2020. Stellantis recently reported that for the first quarter of 2022 , a period that included all of these challenges, revenue grew 12% year-over-year from the first quarter of 2021. While total shipments were down due to the shortage of semiconductors, the company was able to offset the lower unit volume with higher prices. When this bottleneck disappears, it should bode well for Stellantis. The company also has a strong balance sheet with more cash than debt, so it’s not a heavy level of debt that drives down a stock’s valuation.
Besides its undemanding valuation, Stellantis also stands out for its returns to shareholders. Shares are currently yielding 7.5%, a compelling payout. Stellantis is targeting a dividend payout ratio of 25-30%. It should be noted that this is not a quarterly payout that many US-based investors are used to – the company pays an annual dividend, and the total payout will change from year to year depending on the performance of Stellantis. Company. However, with the company’s goal of returning 25-30% of its free cash flow to shareholders, it looks like Stellantis will continue to be a viable choice for dividend investors. Stellantis also uses share buybacks to return capital to shareholders, with a plan to retire up to 5% of outstanding shares by 2025.
Stellantis is committed to becoming a major player in the electric vehicle (EV) revolution. The company’s bold “Dare 2030” plan outlines its goal of having electric vehicles account for 100% of sales in Europe and 50% of sales in North America by 2030. The company says it will have 25 new all-electric models in the United States. by 2030 and plans to roll out an electric Jeep SUV in 2023, followed by a Dodge muscle car electric car and a Ram pickup truck in 2024. One of the ways Stellantis’ electrification strategy differs from that of its peers is that it will still release hybrids, plug-in vehicles that combine battery electrics with traditional ICE engines. This appears to be a prudent strategy for the next few years, as the infrastructure is not yet in place for all vehicles to go electric. I also like that Stellantis is investing in battery technology, partnering with LG Energy Solution to invest C$5 billion in a lithium battery production plant in Canada and a joint venture with Samsung SDI in Indiana. Having its own batteries could help protect Stellantis from future supply chain shortages and price increases in a future where everyone is competing for batteries. In the same vein, Stellantis recently announced an agreement with Precision Hon Hai (HNHAF 8.16%) (also known as Foxconn) to develop more advanced semiconductors, which could help it alleviate future chip shortages.
Stellantis has a strong leader at the helm of CEO Carlos Tavares, who is widely credited with cutting costs for the PSA Group and returning France’s biggest automaker to profitability. He also led Peugeot’s takeover of Opel and helped revitalize the German company. Tavares pushed for the merger with Fiat Chrysler and oversaw its completion, touting the move as one that would create 5 billion euros in annual synergies within five years. It appears that Tavares and Stellantis are well ahead of schedule, and they now expect to achieve these synergies by 2024. With 14 brands in the wheelhouse of Stellantis and the global scale of the business, Tavares has the ability to expand popular and premium brands like Jeep, Maserati and Alfa Romeo into new markets, and it can also phase out some of the weaker brands if necessary.
Stellantis looks like a solid investment opportunity for the road ahead. Investors who buy now start with a very low valuation and an attractive dividend payout. The company’s goal is to double revenue by 2030, and it’s already ahead of its goal of achieving $5 billion in annual synergies from its merger. Stellantis is in good hands with CEO Carlos Tavares, and the company is home to an attractive and diverse brand portfolio.