Where Are Fiat Chrysler’s Valuation Multiples before Its 1Q17 Results?
Valuation multiples are widely used for capital-intensive businesses such as the auto industry to compare different companies. This comparison should ideally be made between companies that are similar in business type, size, or financials. In this fashion, the valuation multiple of Fiat Chrysler Automobiles (FACU) can be compared with peers like Ford (F) and General Motors (GM).
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Fiat Chrysler’s valuation multiples
On April 19, 2017, Fiat Chrysler’s forward EV-to-EBITDA1 multiple is 1.6x, which is much lower than its peers. In comparison, GM and Ford have forward EV-to-EBITDA multiples of 5.8x and 12.0x, respectively.
EV is the market value of equity and debt minus cash and cash equivalents. The EV-to-EBITDA multiple values the worth of the entire company and not just the equity portion.
Similarly, FCAU’s forward PE (price-to-earnings) multiple is 4.4x, which is lower than GM’s forward PE multiple of 5.6x and Ford’s forward PE multiple of 6.9x.
Factors affecting multiples
In the last couple of years, Fiat Chrysler has been able to demonstrate its ability to improve its debt position. However, the company’s profit margins are still the lowest among its peers (VCR), including GM, Ford, and Toyota (TM).
FCAU’s lower margins could be the primary reason why analysts aren’t expecting any significant positive growth in its future earnings. These lower future earnings growth estimates also negatively affect a company’s valuation multiples by driving them lower.
In the final part of this series, we’ll explore some key technical levels in Fiat Chrysler’s stock price chart ahead of its 1Q17 earnings release.
- enterprise value to earnings before interest, tax, depreciation, and amortization ↩