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BMW's Strong Brands Drive a Narrow Moat

We think the automaker is undervalued.

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Given the global strength of  BMW’s (BMWYY) brands, including passenger vehicles, motorcycles, Mini, and Rolls-Royce, in addition to leading powertrain technology and consistent excess returns, we assign the company a narrow economic moat rating. Unlike its direct compatriot competitors, Audi and Mercedes-Benz, it doesn’t see its consolidated intangible asset moat sources diminished by other no-moat businesses like commercial truck and mass-market brands. BMW has generated returns on invested capital above its weighted average cost of capital in 10 of the past 12 years. In eight of those years, returns were greater than 5 percentage points above WACC. We view BMW shares as undervalued relative to our forecast revenue and cash flow.

The Evidence for BMW’s Narrow Moat
Because of the strength of intangible assets, including brand and intellectual property, BMW has a narrow moat rating. Brand strength has enabled premium pricing across all of BMW’s products, while intellectual property supports the brand image with strong product execution, especially in powertrain.

Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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