Continental's Q3 Improves as Chip Crunch Lessens; Slight FVE Increase to EUR 146

Narrow-moat-rated Continental reported third-quarter earnings per share before special items of EUR 1.70, beating the EUR 1.58 EPS FactSet consensus by EUR 0.12 and EUR 0.43 better than the EUR 1.27 EPS reported a year ago when the chip crunch was at its worst. Consolidated revenue beat consensus by 4%, increasing 29% to EUR 10.4 billion from EUR 8.0 billion last year. Excluding positive currency effect, organic revenue increased 23%. Automotive organic revenue jumped 34%, outperforming a 29% increase in global light vehicle production by 500 basis points thanks to new business and raw material customer price recoveries. Tire organic revenue jumped 16% on pricing, while ContiTech organic revenue increased 16% mostly on non-automotive pricing and volume growth. The time value of money added EUR 4 while changes to our model subtracted EUR 2, making our new fair value estimate EUR 146, up from EUR 144. The 5-star-rated shares of Continental currently trade at a compelling 59% discount to our fair value.