Is Mercedes-Benz Stock A Buy At $58?

DDAIF: Mercedes-Benz Group logo
Mercedes-Benz Group

Mercedes-Benz stock (OTCMKTS: DDAIF) has declined by about 24% year-to-date, roughly in line with other major automotive stocks. There are multiple macro and industry-specific factors that have hurt the stock, including the war in Ukraine and supply chain issues which are hurting volumes, as well as surging inflation and mounting economic concerns. That said, Mercedes’s financial performance has remained quite strong. Over Q2 2022, although car volumes dipped by about 6% year-over-year to 487,100 units, Mercedes-Benz revenues rose by 7% to 36.44 billion euros ($37.25 billion), adjusting for the spin-off of the company’s truck operations last year, with adjusted EBITDA rising 8% to 4.94 billion euros ($5.05 billion). Demand for Mercedes vehicles has been strong and this is giving the company better leverage with its pricing. For example, we estimate that the average selling price for Mercedes cars has risen to over 55,000 euros ($56,200) over Q2 versus 48,000 euros ($49,071) in the year-ago period. The company has also been prioritizing the delivery of more premium vehicles and trims as it works through supply shortages. Operating margins also remained roughly flat, despite inflation pressures.

We remain bullish on Mercedes, with a price estimate of about $68 per share, which is about 17% ahead of the current market price. Mercedes stock is currently trading at under 4.5x projected 2022 earnings and we think that this is a reasonable valuation for the company, given that revenues are projected to grow by about 8% per consensus estimates. Although there are economic headwinds, with the U.S. economy contracting over the last two consecutive quarters, demand for Mercedes products has actually held up very well. In fact, the company’s deliveries in the U.S. rose by 22% year-over-year to 83,200 vehicles despite the apparent recession. Mercedes is also making significant headway in its transition to electric drivetrains, with the company noting that the share of all-electric vehicles in its luxury vehicle mix has almost doubled compared to the previous-year quarter. The company plans to electrify its entire lineup by 2030. See our analysis of Mercedes-Benz valuation for more details on what’s driving our price estimate for Mercedes Benz.

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 Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 DDAIF Return -1% -25% -22%
 S&P 500 Return 0% -13% 84%
 Trefis Multi-Strategy Portfolio 0% -13% 246%

[1] Month-to-date and year-to-date as of 8/1/2022
[2] Cumulative total returns since the end of 2016

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