Fiat Chrysler is spinning onto the New York Stock Exchange (NYSE) - looking decidedly overvalued. Boss Sergio Marchionne revealed earlier this year that he wants to sell 60 per cent more cars by 2018, costing perhaps $10 billion a year. That's a big ambition for a debt-laden manufacturer with lagging margins. Yet the Italo-American carmaker, which started trading on the Big Board on Monday, sports a similar multiple to more profitable rivals Ford and General Motors (GM).
Marchionne has done well to get the newly merged company this far. Fiat was on the brink of a financial crash when he took the wheel a decade ago. And President Barack Obama's administration would have sent Chrysler to the wrecker's yard in 2009, if Fiat hadn't offered to gradually take it over. Now it's on far firmer footing: September's US sales, for example, were the company's best for that month since 2005.
Financially, though, Fiat Chrysler is still behind. Analysts expect its pre-tax margin to be a paltry 1.4 per cent this year, according to Thomson Reuters data. And it's only expected to hit 3.1 per cent by 2016. Ford, by contrast, is heading for just under five percent this year and 7.4 per cent in two years' time. GM is likely to be around a percentage point lower than Ford.
On top of that, Detroit's top two automakers have pristine balance sheets, boasting ample and growing net cash. Fiat Chrysler may end this year with $16 billion in debt. That's a tough position to start an ambitious expansion from, not least when Marchionne wants to increase sales at three times the rate research firm IHS expects the industry to grow over the next four years.
Yet, Fiat Chrysler hits the NYSE trading at seven times 2016 estimated earnings. That's barely behind Ford's multiple of 7.1 and better than GM at 6.3 times earnings. Granted, both companies' shares have been hit this year - GM's by recall woes and Ford's by a revision to guidance caused by problems in Russia and Latin America. Marchionne's Big Board debut may mark the company's best showing for a while.
