Daimler AG’s Stock Rally To Continue

[Updated 09/14/2021] Daimler AG Update

Daimler’s stock (OTCMKTS: DDAIF) has gained 20% since the end of 2020, to $85 currently. The stock has been rising since the start of the year as the company continues recovery post the pandemic. In the recently concluded Q2 2021, Daimler saw revenue growth of 54% y-o-y reaching $52.4 billion while earnings were recorded at $4.05 compared to $-2.11 in the same period of the previous year. The stock price took a small dip around June as the sector is going through a semiconductor chip shortage, which has affected production across companies. In a recently conducted Munich Motor Show, Daimler’s CEO, Ola Kallenius, mentioned that the third quarter is expected to be the most significantly affected by the shortage before recovery in the fourth quarter. We believe this has already been factored in the price and the company is expected to continue growth in revenue and earnings going forward.

Overall, we expect Daimler AG’s revenues to rise by 4.6% to €162.3 billion ($196 billion) in 2021. In 2022 revenue is expected to rise further to €168 billion ($203 billion) and its net income is likely to be €5.6 billion ($6.8 billion). This will take the EPS figure to €5.24 ($6.34) for FY 2022, which coupled with the P/E multiple of 15.7x and a euro to dollar exchange rate of $1.21 will lead to Daimler’s valuation around $99, implying an upside of 17%.

[Updated 01/25/2022] Daimler AG’s Stock Has A 10% Upside Potential

We believe that Daimler’s stock (OTCMKTS: DDAIF) still has a 10% upside once the fear around the pandemic subsides. DDAIF trades at around $72 currently. It has recovered beyond its pre-Covid level. DDAIF stock has gained 32% from the pre-Covid price of $54 seen in January 2020, after the Fed’s multi-billion dollar stimulus package announcement on March 23rd, which lifted market sentiments. The stock price rose as lockdowns lifted across regions creating positivity for the sector. Despite the rally in DDAIF stock since late March, we believe that the stock has room for more growth as the fear around the pandemic subsides, with the progress with vaccines across countries. 

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• From 3/24/2020: S&P 500 recovers 72% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how DDAIF and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Daimler AG vs S&P 500 Performance Over 2007-08 Financial Crisis

DDAIF stock declined from levels of around $103 in September 2007 (pre-crisis peak) to levels of around $23 in March 2009 (as the markets bottomed out), implying DDAIF stock lost 78% approximate from its pre-crisis peak. It recovered post the 2008 crisis, to levels of about $53 in early 2010, rising by 136% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

Daimler AG Fundamentals in Recent Years 

Daimler AG’s Revenues rose 13% from $169.6 billion in 2016 to $192 billion in 2019, primarily due to an increase in volume and pricing. Despite the rise in revenues, the company’s margins fell from 5.6% to 1.4%, resulting in a 72% EPS fall from $8.82 in 2016 to $2.47 in 2019. The company’s Q3 2020 revenues were 0.8% above the level seen a year ago, and the EPS figure for the quarter was up to $2.26 from $1.75 in the same period from the year before. 

Does Daimler AG Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Daimler AG’s total debt increased from $1.9 billion in 2017 to $20.6 billion at the end of Q3 2020, while its total cash increased from $9.7 billion to $29.8 billion over the same period. The company gained $10 billion in cash from its operations in the first nine months of 2020. This shows that the company has enough cash to meet its obligations.

CONCLUSION

Phases of Covid-19 crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Going by the historical performance in Daimler AG’s stock, we believe that the stock has room left for more growth in the near future. 

Further, our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. With investors focusing their attention on 2021 results, the valuations become important in finding value.