Is Fiat Chrysler an Automotive Value?

There is one automaker that has caught the attention of a lot of value investors; Fiat Chrysler Automobiles (NYSE: FCAU). It is easy to see why this is a company that reported $122.84 billion in revenues on December 31, 2016, yet its stock was trading at $10.94 a share on March 31, 2017.

Nor is it just revenues that have caught value investors’ attention, FCAU reported a net income of $1.995 billion and a free cash flow of $2.384 billion on December 31, 2016. The owner of Dodge, Alpha Romero and Jeep also reported a lot of float in the form of $19.11 billion in cash and short term investments and $11.73 billion in cash from operations.

Yet it reported a market capitalization of $20.77 billion on March 27, 2017, and an enterprise value of $27.09 billion on December 31, 2016. All of that sounds undervalued for a company that reported $110.31 billion in assets at the end of 2016.

Is Fiat Chrysler a Bargain Stock? Jeep Sales Skyrocket in Europe

There is some evidence to indicate that Fiat Chrysler is something of a bargain. After all it operates one of the most popular and successful auto brands in the world: Jeep.

Jeep sales in Europe increased by 19% in 2016, rising from 88,226 in 2015 to 104,978 a year later, Auto News Europe reported. Although it should be noted that Jeeps composed .6% of the vehicles sold in Europe last year. This bodes very well for the future because auto sales in Europe increased by 4% in 2016.

Jeep’s popularity is driven by sales of SUVs and crossovers. The most successful new vehicle in Europe last year was the Jaguar F-Pace from Tata Motors (NYSE: TTM) an SUV.

The most popular Jeep model in Europe was the Renegade subcompact sport utility vehicle (SUV); the sales of the Renegade in Europe increased by 20,000 in 2016. Another 11,000 Renegades were sold in the United Kingdom as well. Jeep is bringing out a new  model in Europe the Compass to cash in on its best sales ever in Europe.

Fiat Chrysler is cashing on the Jeep craze in Europe with new models including the Renegade Desert Hawk, The Car Expert reported. Nor was the sales boom a European phenomenon things were just as good in Jeep’s homeland.

Jeep, Truck and Minivan Sales Boom in USA

To add icing to the cake Jeep sales were also great in the USA according to FC Authority:

 

  • Between June 2015 and June 2016 American sales of the Renegade increased by 99.4%.

  • Sales of another model; the Compass were even better increasing by 127.54% in the same period.

 

  • Another model; the Patriot was also a big success, its sales increased by 24.34% in the 12 months that ended in June 2016.

 

  • Lagging a bit was the Grand Cherokee, sales of the four-wheel drive land yacht increased by just 8.7% during that period.

Nor was it just Jeep, sales of Ram (the brand Dodge trucks are now sold under in the USA) increased by 55,654 in 2016; rising from 488,264 in 2015 to 543,918 at the end of the year. Another success at Dodge was vans, sales of the Caravan increased by 10% in November 2016, sales of the Promaster Van increased by 51% and the ProMaster City minivan grew by 82% during the same month, StreetInsider reported. The brand new Chrysler Pacifica was also a hit its sales grew by 52,083 during November 2016.

Chrysler’s Car Troubles

There are some serious problems at Chrysler, with the exception of the Dodge Charger, its cars are not selling. Sales of the Alpha Romero brand in the USA fell by 23% during November 2016 and sales of the Fiat brand by 19% during the same period. Total car and MPV sales fell by 16% while utility vehicle sales grew by 7% and Truck and light utility vehicle sales grew by 11%. Charger sales did increase by 35% between November 2015 and November 2016.

All this indicates that Chrysler is a really good company with some bestselling brands but it is being dragged down by Fiat and traditional cars. That is not a long term problem because the company is phasing out most of its car production in the US to concentrate on vans, SUVs and trucks which sale. For example: sales of the Dodge Durango SUV also increased by 10% in November 2016.

An obvious solution here might be to stop selling Fiat and Alpha in the US since there does not seem to be a market for those cars on this side of the pond. Another would be to phase out all the Chrysler car production except for the Charger; which is a popular police car in North America.

 Yes Chrysler is a Value Investment

Despite the car troubles, Chrysler is definitely a value investment because of the success with Jeeps, vans, trucks and Chargers. It has the most popular standalone SUV brand on Earth, a successful line of trucks, popular vans and minivans and huge share of the government and commercial market in North America.

This market is sure to grow with such moves as introducing a hybrid Pacifica and forming a partnership with Alphabet’s (NASDAQ: GOOG) Waymo; formerly known as the Google Car, to develop a self-driving minivan. This gives, Fiat Chrysler a bright future and makes it a value investment.

If you want to take a risk on a cheap automotive stock, make it Chrysler this company is posed for big growth in North America and around the world. It is also really cheap which leaves lots of room for growth potential right now.