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Stellantis: Its Undervaluation Is Getting Harder And Harder To Justify

Luca Socci profile picture
Luca Socci


  • Stellantis is undervalued by almost any metric.
  • It is delivering best in class margins, with a strong net cash position and excellent cost management.
  • It is being unnoticed, but Stellantis is among the leaders in the BEV market and may soon become the largest European player.

Chrysler Fiat Announces Jeep Brand Will Anchor Company Overhaul

Bill Pugliano/Getty Images News


This article will further develop the research I already shared in a previous article (Stellantis is swimming in cash), where I outlined Stellantis' (NYSE:STLA) solid balance sheet, with a net cash position of almost $20 billion.

I pointed out

This article was written by

Luca Socci profile picture
I focus on long term growth and dividend growth investing. I follow both the US and the European stock markets, looking for undervalued stock and/or for high quality dividend growing companies that provide me with cash to reinvest. I invest only in stock of companies that run a business I understand through direct experience.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of STLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (63)

Woudn't be quite easy for a Fund to do an Lbo at these share prices and repay the debt with stellantis own liquidity? I wonder what the BoD is waiting for before authorizing a massive shares buy back program?
Luca Socci profile picture
@Staccani I actually thought the same thing. Keep in mind that part of the debt is linked to the financing branch of the company so the real industrial debt is even lower and STLA could pay it off entirely. I think the company will direct its cash not only at reducing debt. We will see we’ll supported dividends and some share buybacks. But I also think that we might see yet another acquisition.
Tdot profile picture
"I wonder what the BoD is waiting for before authorizing a massive shares buy back program"

The Board of Directors would only authorize a massive share buyback if there was a massive surplus of cash, and nothing more important to spend it on. With the expensive transformation from ICEVs to EVs, and inflation with a possible global recession, and it would be utter irresponsible lunacy to burn up all their cash in giveaways to ex-shareholders.
@Tdot in h1 2022 they produced 5b eur fcf despite 3 b eur working capital increase. H2 2022 will be probably anywhere between 5 to 10 b eur fcf which will give a nfp of 25/30b eur with 45 b eur market cap. With such low share prices, the conpany is a target for a takeover
What part of a global slow down don’t you understand. I love Stellantis but the big picture is not looking favorable for profitability
Luca Socci profile picture
@Alan12 there might be a slowdown in the near term, but, as I tried to show, Stellantis is ahead of its competitors in terms of profitability and so it will start from a higher level than the others. This will allow it to remain profitable even during a recession.
Tdot profile picture
Also the transition and redesign of their iconic and highly profitable "muscle car" V8 Hemi-powered Dodge Charger and Challenger to EV-only versions is likely to be an expensive and painful process, with much angst from the Mopar enthusiasts. That said, would love to see a Viper return as an EV to compete with the Tesla Roadster.
Luca Franza, CFA profile picture
Great article, big thank you
Udith Fonseka profile picture
Reminder how many EV's Stellantis has--how good they look and how they are less than half the price of a Tesla.
(notice they had cool door handles before Tesla) https://youtu.be/zRXjsfJU6bs https://youtu.be/Gg-8VwE3MTI
@Udith Fonseka you mean the company Sandy Munro says will be the first legacy automotive company to go bankrupt? The same company whose chance of bankruptcy is 71% based on the Altman Z-Score and Piotroski F-Score, among others?
Udith Fonseka profile picture
@i_do_inhale----Yes, they are great videos--beautiful cars and the prices, incredible. Im not sure about Sandy Munro.
But -Stellantis's Alta Z score is 6.8---The highest of all legacy Auto companies. The higher the number--the more strong!!!
-Ford and GM are 1.2 while Volvo is 4.8 and even BYD is 3.9.
Yet for Piotroski----GM has a higher score than Tesla!
But then Tesla has a very high Alta Score.
Research the Bankruptcy rates for large companies--SP 500 and you will see that 71 percent is a very very flawed number showing the that method/calculations are faulty.--Yes large companies can and will go bankrupt. Large non-financial US companies that have gone Bankrupt in the last 25 years total less than 10! (Lyndell Chemical, Enron, GM, Ford, Worldcom etc) out of 500--So one single company every two or three years. Current Altma Scores show that RL ,PVH ,Dupont, Occidental Pete, Kraft, Devon Energy, HCA, Apache Energy, Domino's Pizza and lots more-- all-have a very high chance of going Bankrupt in the next two years???
Yet he claims a 72% prediction success rate since 1968. Something is not adding up by a very very very large margin---has anybody run the numbers and called out these Scores?
nomobailouts profile picture
Thanks for this excellent analysis. Looks like STLA could be a good counterbalance to portfolios that have a heavy TSLA component. Also, as STLA evolve they will surely highlight the performance of the better run brands, to motivate the less well performing brands and raise the performance bar across the company. If some brands succeed in the EV market while others flail, the structure of STLA makes it relatively strightforward to shut down failing brands. It enables STLA to go all in on EV's with some brands and have others scale down gracefully until they evaporate.
Luca Socci profile picture
@nomobailouts you make two interesting point on portfolio balancing and internal competition on performance. The latter is exactly what Tavares said he would do: he appointed a CEO for each brand and gave each one of them ten years to prove the value of the brand and whether it is worth keeping or not.
nomobailouts profile picture
@Luca Socci I'd guess 10 years is unlikely to be reached by those not performing well and showing good progress down the path within 3-5 years. That is, they have 10 years if they demonstrate year by year that they are heading in a good direction. On the tranisition from ICE, I wonder if having a legacy ICE business is more of an advantage (cashflow from ICE sales) or disadvantage (scaling down ICE mfg and support as EV's take over, without bankrupting the company).
Tdot profile picture
nomo - that is exactly Ford's strategy. The profits from legacy ICEVs pay for the transition to BEVs, so they don't need to sell equity or take on more debt or beg for government assistance and subsidies.
Thank you for the article! When you mention they may be a leader in BEV, do you know how they are doing building a supply chain? Besides inverters and motors, they will of course need massive amounts of batteries (or Lithium, graphite, etc if "rolling their own")?
(Ford and GM love to say that they are "all in" on EV's, but I don't see them capable of obtaining the supplies they will need.)
Luca Socci profile picture
@ubernerd yes, if you look at slide 15 of the investor presentations, you will see the whole strategy of the group mapped out. The plan is to have 5 gigafactories (3 in Europe and 2 in North America) thanks to partnerships with Automotive Cells Company, Samsung SDI and LG Energy Solution.
Low carbon lithium will be supplied by Vulcan Energy e Controlled Thermal Resources, respectively in Europe and North America.
@Luca Socci the same LG whose batteries are being recalled by
GM, Mercedes, Hyundai, Stellantis, and VW?
Excellent article well explained will be buying more thanks again
Luca Socci profile picture
@alohabernie thanks for your comment. Glad you, too, are investing with many of us in the stock.
@Luca Socci Thanks for a good article and comments, it helps to understand the company better.
Actually I remember the same paragraph from Lynch's book as I also read it when I started investing actively at the end of 2019.
And I remember a French user commenting here on SA mid-2020 that the then-PSA Group share was ridiculously low, compared to their cash position.
So after some basic research and only based on such simple facts I started a modest position, which proved to be a good move in hindsight.
Now Stellantis is about twice as big, at double the share price, still at low valuation and with lots of cash, and seems well managed, so to me it appears there is good risk protection here. Perhaps it would make most sense here to slowly build a position over many quarters, collecting the dividend and waiting for the price to align with the fundamentals... Which I hope it should, eventually?
Luca Socci profile picture
@n00b_stockpicker I started building my position in June 2020. I have since then bought more and more, especially this year.
great article, it is a no brainer to have some in a portfolio. Other 3 french ones are Klepierre, valeo and tf1 (all 3 are totally underpriced leaders)
Luca Socci profile picture
@OscarSmith thanks. I will take a look at these three.
@OscarSmith Second Klepierre. Great company.
Thank you for a well detailed deep dive look at Stellantis. I opened a position 4 months ago and your article confirmed my intuition.
Luca Socci profile picture
@hoopguru nice timing. Let’s keep in touch to follow our investment.
Udith Fonseka profile picture
Stellantis, a tiny bit more undervalued than Tesla---lol
And all its different Brands are an asset.
Luca Socci profile picture
@Udith Fonseka they are, indeed.
Very well written article, I couldn't agree more
Federico Cuneo profile picture
Thanks for the article, I am long Stellantis, but I believe the reasons for the stock being so cheap are:

1. There is nothing more Dinosaur than a European company and in this pond anything old industrial like autos or steel are major turn offs.
2. They have way too many brands which makes it hard to manage and to keep focus.
3. The day they will need to close a factory in France or Italy, good luck with that dealing with unions and local politicians.
4. It is perceived as a European company and everybody believes Europe is headed for a harsh recession.

I have the shares because I am getting them almost for free if you take out net cash and I do believe it is a well run company and hoping EVs will bring new life and excitement to the stock.
Luca Socci profile picture
@Federico Cuneo thanks for your comment. It really sheds some light on many investors' minds. However, I think there are good reasons to believe that this is not just an old European company, but it is a major international group with skilled management and a core market in the U.S.
I also like Tavares' strategy to give each brand's CEO ten years to prove the value of the brand and its ability to earn profits (eu.detroitnews.com/...)
The possibility of union strikes in France and Italy is something to take into account, however I don't see how this can be the reason that drives the stock to such a depressed valuation.
With these fundamentals, I am confident we have a margin of safety and a very likely upside that will eventually happen.
Great reports, thanks. Its better even than you say. STLA (16.8%) is breathing down the neck of VW (18+%) not Tesla. Tesla is third in Europe.
"We are ahead of Tesla in Europe in electric vehicle sales, and not far from Volkswagen,” stated Stellantis CFO, Richard Palmer during the conference call.
"In a demanding global context, we continue to ‘Dare Forward’, delivering outstanding performance and executing our bold electrification strategy,” said Stellantis CEO, Carlos Tavares.
Count me in as a believer.
Luca Socci profile picture
@energyhogg thanks for your correction. In my version of the transcript there were no competitors names and I looked at VW and Tesla's report but I see now that I inverted them. I will ask SA to correct my article right away.
Let's keep in touch to see how Stellantis will perform over the years.
Congratulations, you've made a great case for the investment. However, European automotive is a cursed sector and the valuations are depressed all across. No one trusts EU on its silly environmental regulations. VW is trading at a FWD P/E of 3 or something. Of course it's in a worse shape than Stellantis right now, just saying that we are fishing in a very unloved pond here and the market can stay this way for years (the track record has certainly been there). That being said, thanks for putting Stellantis on the map for us.
Luca Socci profile picture
@ValueInvestor_82 usually these ponds are the ones where patient investors find very rewarding fish. I have a long-term horizon (Peter Lynch held onto Ford for several years) and in the meatime, I will receive high dividends and maybe see a buyback. From a 2 PE ratio, if Stellantis just closes the gap with VW (it has already surpassed it, in my opinion, from an execution point of view) and gets to a 3 PE or higher, shareholders will earn a big upside.
@Luca Socci You are absolutely right! It's probably not a good stock for folks with a short attention span. For people with a very long-term horizon, it's a steal. By the way, if I could offer a different perspective on your DCF valuation - automotive is highly cyclical. History teaches us that sooner or later there will be a year when Stellantis will be barely profitable, or even loss-making, due to an external factor beyond it's control. Therefore, I would build this in a DCF calculation by say removing one year worth of profits from the 5-year forecast, to simulate a deep recession, or applying a haircut on top of the resulting price. I just think that EUR 63m is too optimistic, as it extrapolates the current exceptional performance forever. I've been observing automotive industry for long enough to know that these spells of exceptional performance never last for more than a few years. That being said, even if we applied 50% haircut to your DCF valuation, we'd be at roughly EUR 30. So there's a lot of margin for error.
Luca Socci profile picture
@ValueInvestor_82 your suggestion for a more conservative DCF is right. I wasn’t as conservative as possible because I do expect over the next 4-5 years a market that should recover a bit in terms of volumes while feeling more and more the EV turnaround. Moreover, it is difficult for this stock to trade at even lower multiples. However, your comment helps us all understand then even in the worst possible case, we are really before an opportunity that can reward long-term investors.
Nice article. You make a strong case for your position
It's been like this for a decade.
Back then Merchionne had really high targets, nobody believed it.
They delivered on the high targets, market didn't reward the stock.

Now management remains very high quality, they set high targets, they deliver, market still doesn't reward them.
I think the undervaluation will be permanent. The company will have to get smarter with buybacks, on top of the dividend.
Luca Socci profile picture
@Luwei2 well, given the fact that they have raised almost €10 billion in cash in just six months, I would mind waiting while seeing all this money returned to shareholders.
@Luwei2 tradingeconomics.com/... this is FCA Chrisler PE trend in the last decade, as average well above 30. Do you make up stories?
@Luca Socci Yeah. I hold this, since recently.
It's definitely under the radar.
To those who even know what Stellantis is, there is a lot of stigma because it's a car legacy maker (so it must have a lot of debt) and European on top of that (never mind all the US brands).
To those who don't mind the stigma of European legacy car makers, they say it's one of the biggest laggers in EV.
Oh, and it has all the shitty brands.
And of course: recession is coming and car makers are cyclical. Never mind a very strong down cycle has been in play for two years now and to catch up demand to get past this historically old car park will require almost a decade of high car cales.

There is so much prejudice against this company.

Reality is its operating margins are on Tesla level, it has so much cash and fcf, it will soon lead in EV in Europe and move forward fast everywhere.

They have top execution/management in the car market.

For all that you can hope it rerates to 4 p/e, maybe even 5 p/e.
What a market.
r Negoro profile picture
I really had no inkling what is stellantis, but it is actually fiat. Lol.
Luca Socci profile picture
@r Negoro well, not really. It is the former Fiat, with the Chrysler acquisition (Chrysler, Dodge, Ram, Jeep) that merged with Peugeot (Peugeot, Citroën, Opel). It is actually a company with three souls: American, Italian and French.
Udith Fonseka profile picture
@Luca Socci do not forget Vauxhall, Maserati, and Alpha Romeo.
Each brand/marque has a niche and it has a strong commercial/Vans side
Luca Socci profile picture
@Udith Fonseka yes, of course, I was just naming a few of them. There is also the Lancia turnaround at stake and it could be a major driver of profitability given the fact that it is a premium brand.
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