Why is Stellantis Stock so Cheap?

Investors haven’t forgotten about the emissions scandals – but this stock isn’t a lemon.

Andrew Willis 9 February, 2024 | 4:29AM
Facebook Twitter LinkedIn

 

 

Interested in other cheap stocks? Check out our recent episode on BlackBerry stock

Key Takeaways for Stellantis Stock:

  • As the auto industry strives to keep up with emissions standards, some automakers have been accused of taking shortcuts. Ethics risks can evolve into extremely expensive regulatory issues that investors want to avoid.
  • Volkswagen VWAGY paid a severe price, which echoes in fines issued to Stellantis STLA and just last December, Stellantis’s supplier, Cummins CMI. Stellantis denies involvement in emissions cheating, but business controversies add to corporate governance risks.
  • Stellantis stock looks undervalued, however, and the company’s making a major effort to electrify its lineup. After the Peugeot-Fiat Chrysler merger, the development should accelerate and the company aims to build 5 million battery electric vehicles, per year, by 2030.

 

Andrew Willis: As consumers, if your products can’t meet minimum government requirements, how can you trust those products to do anything properly?

And how should you feel if your products are accused of going out of their way to cheat? What happens to the companies? We know the 30 billion dollar answer with Volkswagen. And we got a 300 million dollar answer for Stellantis. The latter is a small sum by comparison, but the problems aren’t necessarily over - especially after the 2 billion dollar answer its supplier Cummins recently received, involving 600,000 Dodge Ram pickup trucks.

Controversies Contribute to High Uncertainty Rating for Stellantis Stock

While Stellantis denies involvement in diesel emissions cheating senior equity analyst Richard Hilgert says business controversies add to corporate governance risks. He notes that while board members are elected to four-year terms initially, thereafter they need to be elected every two years.

Future action from Stellantis shareholders need not be negative, however, especially if the company continues its progress on the EV front - which with the help of the Peugeot merger, should ‘turbocharge’ development. 

For Morningstar, I’m Andrew Willis.

bulls Stellantis Bulls Say

  • Merger integration enhances economies of scale. In 2022, management achieved cash flow synergy targets two years ahead of schedule.
  • Low global light-vehicle inventory due to COVID-19 and the microchip shortage has strengthened the current pricing environment, which should enhance margin in the near term.
  • Global expansion of premium brands like Alfa Romeo, DS, Jeep, and Maserati strengthens average revenue per unit and improves profitability.

bears Stellantis Bears Say

  • Stellantis lags competitors’ progress in transition to EVs as Fiat Chrysler required the purchase of carbon credits to avoid clean air regulation noncompliance fines due to slow EV development. However, merging with Peugeot has accelerated Fiat Chrysler EV development.
  • The global auto industry suffers from overcapacity that increases pricing pressure, in turn limiting economic profits in the long run.
  • Fiat Chrysler failed to grow its premium Alfa Romeo and Maserati brands. Under new Stellantis leadership with Carlos Tavares as CEO, these storied brands may yet have new life.

 

The author or authors do not own shares in any securities mentioned in this article.

Get the Latest Stock Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cummins Inc284.91 USD0.36Rating
Stellantis NV22.31 USD1.78Rating
Volkswagen AG ADR15.08 USD2.17Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility