Stellantis Second-Half Results Impress, Issues 2023 Guidance

No-moat-rated Stellantis STLAM reported second-half revenue of EUR 91.6 billion, up 19% from EUR 76.8 billion reported in the prior year. The top line was 2% above the FactSet consensus. Excluding favorable currency, revenue rose 12%. The increase was substantially better than the 4% rise in unit volume to 3.0 million from 2.9 million last year. The chip shortage and logistics disruptions as well as unfavorable geographic mix contributed negative 1 percentage point to the revenue increase, more than offset by vehicle pricing, content, and mix that added 10 percentage points while average revenue per unit rose 25%. The automaker (French domiciled for accounting purposes) discloses only revenue in the first and third quarters but full financials for the first half and full year.

Second-half adjusted operating income, or AOI, was EUR 10.9 billion for a margin of 12.0% versus last year’s EUR 9.4 billion and a 12.2% margin. AOI was 5% better than consensus. While margin was healthy, supported by price, content, vehicle mix, and merger cost synergies, the slight contraction in margin was due to geographic mix, higher raw material costs, increased energy costs, and logistics disruption. We are raising our fair value estimate to EUR 38 from EUR 36 due to the time value of money since our last update. The 5-star-rated shares of Stellantis currently trade at a compelling 57% discount to our new fair value.

Management’s 2023 guidance reflects alleviating chip shortage and stable economic conditions. The company expects mid-single-digit volume improvement in most of its regions. The firm forecasts double-digit AOI margin and positive free cash flow. We estimate 2023 revenue and AOI margin of EUR 182 billion (up from 2022 revenue of EUR 180 billion) and 12.8% (flat with 2022) due to the strong pricing environment, less output disruption, and cost reduction measures, but we remain concerned about a possible recession in major auto markets, the Ukraine war, and chip availability.