FCAU: Fiat Chrysler Auto is the 4th biggest car company by units in USA and includes multiple brands (Chrysler, Jeep, Maserati, Fiat, Alfa Romeo, Dodge, Ram …).
Even if FCAU doesn’t distribute any dividend at the moment, I consider it as an excellent dividend generator due to its family ownership and its undervalued price.
FCAU is in the process of big turnaround started few years ago with Chrysler acquisition from bankruptcy and now improving European and South American Operation of the whole group.
Its 2018 target of 10B$ EBIT and debt free is ambitious and challenging, especially considering that its capitalization is lower than 8B$. In few words they could buy back the whole company (@current prices) with few months of profit only.
and here my calculation:
- let’s consider that they reach only 8B$ EBIT and 5.5B$ Net Profit
- if they distribute 40% as dividend (very common and conservative number), they will distribute 2.2B$ or 27.5% of current prices
Why am I considering this company?
- I am confident on the management, considering that it has been conservative so far and achieved amazing results from sales and financial point of view, making FCAU shareholders very happy during the last 4 years. On top, it’s one of the few that is very Free Cash Flow concerned. So not only it’s focus on profitability but also on how it’s using its Cash.
- Few things are going to improve Net Profit in the coming quarters:
- lower interest cost (in few years it could be reduced by 1B$)
- expansion in Asia of Maserati and Jeep Brand
- recovery in Brasil (where it’s the biggest producer)
- additional operational improvement in Europe, where Fiat and Jeep growth can guarantee decent profit
- on top, a stronger $ could boost american profit comparing with the debt in € currency
Clearly there are also risks:
- Alfa Romeo’s relaunch that has failed so far
- Drop in Global vehicle demand, softening in USA where they have pushed aggressively
- low marginality in Europe
However, I believe these are more than included in current prices.
It’s clear that if half of the things goes along, FCAU is highly undervalued and it could generate a massive dividend.
And I am not alone: according to Morningstar, FCAU is a 5 stars investment with 900m$ free cash flow in 2015 and 800m $ in the last six months (+100% YoY), with 16$ target price (today is 6,5$)!!
In 2018, with 1-2$ potential dividend per share, it could be your next dividend for you.
Disclosure: I am long on FCA.MI (the € shares of FCAU)