Daimler Worth $72, But Europe’s Been a Drag

by Trefis Team
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Trefis
DAI
Daimler AG
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Daimler AG (NYSE:DAI) recorded its highest global monthly sales ever for Mercedes-Benz in November 2011, up 8.3 percent year-over-year (yoy), in spite of growing fears of an auto-market slowdown due to deteriorating economic environment. [1] In China and the U.S., Mercedes’ largest markets after Germany, the luxury carmaker posted new sales record in November. Europe sales for Mercedes were supported by  new models of the high-volume B-Class and the new M-Class, which were launched in November. However despite stellar performance in international markets, concerns remain as Daimler’s sales in Western Europe and especially in Germany, which is traditionally Mercedes’ largest market, declined year-over-year even after the support from new model launches. Daimler’s Mercedes-Benz competes globally with BMW (GR:BMW), GM (NYSE:GM), Ford (NYSE:F),  Honda (NYSE:HMC) and Toyota (NYSE:TM) among others.

We currently have a price estimate of $72 for Daimler’s stock, which is well above its market price.

See our full analysis for Daimler’s stock here.

Home Field Dis-advantage

The Eurozone crisis has hit the customer sentiment across Europe and manifested itself in contracting Mercedes sales in the region. With the exception of UK, the rest of Western Europe witnessed Daimler sales contracting year-over-year. Mercedes’ sales last month declined by more than 12 percent yoy in Germany, which is Daimler’s home market and has traditionally been its largest market. [1] Even though Daimler expects that successful launch of B-Class and M-Class will continue to support its sales in Europe going forward, we believe that they will not be sufficient to reverse Mercedes sales downtrend in the medium-term as long as uncertainty around Europe’s sovereign debt crisis remain.

Late last month, Daimler itself expressed the risk of global economy falling into recession due to waning confidence. [2] Earlier this month, the German auto-industry association, VDA, projected that auto sales in Germany as well as production by Germany carmakers will remain flat in 2012. But if the current financial uncertainty and turmoil continues then auto sales in Germany can actually witness a decline. This will result Daimler reducing production to match demand and in turn will lead to declining margins as fixed costs per unit increase. [3]

You can drag the trend lines in the modifiable charts above to see the impact of these trends on Daimler’s stock value.

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Notes:
  1. Mercedes-Benz Achieves Record Sales in November: Sales up by 8.3 Percent [] []
  2. Daimler Sees Danger of Global Economy Slipping Into Recession []
  3. German Car Market Won’t Grow in 2012 []
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