Comparing US Automakers’ Valuations after November 2017 Sales



Wall Street on US automakers

In the previous part of this series, we saw how Wall Street analysts are rating the two largest US auto companies, General Motors (GM) and Ford Motor (F). Currently, a higher percentage of analysts are recommending a “buy” for GM stock compared to Ford stock. Consistent improvements in GM’s profitability and its strategy to focus only on profitable market segments could be some of the reasons for analysts’ optimism for the stock.

Now let’s move on and compare the valuation multiples of these two US auto giants.

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Forward valuation multiples for US autos

Let’s start by looking at US automakers’ forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples. As of December 6, 2017, GM’s EV-to-EBITDA multiple was 7.7x, which was much lower than Ford’s at 13.5x.

These forward EV-to-EBITDA multiples are based on the companies’ expected next 12-month EBITDA.

GM’s forward PE (price-to-earnings) multiple was 7.1x, which was lower than Ford’s at 7.7x.

Among all mainstream automakers, Fiat Chrysler (FCAU) had the lowest EV-to-EBITDA multiple of 2.1x and a forward PE multiple of 5.6x. The valuation multiples of Italian luxury carmaker Ferrari (RACE) are typically much higher than mainstream automakers. That could be because Ferrari’s profit margins are notably higher than legacy automakers. Ferrari’s business model involves lower risk than the risk profiles of mainstream automakers.

Key factors to watch

In the last few years, US auto companies (IYK) have seen good times due to record auto sales in the United States. In the first 11 months of 2017, US auto sales have fallen 1.5% YoY (year-over-year). According to Autodata, US truck sales have risen 4.6% YoY so far in 2017. The higher demand for trucks and utility vehicles could be one of the key reasons that auto investors’ optimism is staying alive.

A consistent improvement in US truck sales in the coming months could move automakers’ future earnings estimates upward, which could also drive their valuation multiples higher.

In the next part, we’ll see how foreign automakers performed on Wall Street in November 2017.


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