Is Mercedes-Benz Stock Good Value At $76 Per Share?

MBGAF: Mercedes-Benz Group logo
Mercedes-Benz Group

Mercedes-Benz stock (OTCMKTS: MBGAF) has had a relatively strong year so far, with its stock up by almost 10%, outperforming the S&P 500. Mercedes posted a relatively strong set of Q4 2022 results, with revenue rising by about 16% year-over-year to about Euro 41 billion ($44 billion). Overall wholesale deliveries expanded by 7% versus last year as supply chain and semiconductor supply-related issues continued to ease. Net profits from continuing operations also rose 66% to about Euro 3.72 per share ($4.01), driven by higher volumes and an expanding mix of top-end vehicles, which saw unit sales rise 14%.

However, despite the relatively strong numbers over the last quarter, we remain neutral on Mercedes stock, with a price estimate of about $78 per share, which is roughly in line with the current market price. Now, although Mercedes stock trades at a relatively reasonable valuation of under 7x projected 2023 earnings, revenues are likely to remain roughly flat this year. Moreover, there could be potential headwinds for the broader automotive market. Although fears of a U.S. recession have eased a bit, given cooling inflation, and a strong labor market, high-interest rates remain a downer. Following the Fed’s big rate hikes over the past year, the effective federal funds rate stands at almost 4.6%  presently, and this could be poised to rise further, given the Fed’s continued hawkish stance. This could impact rate-sensitive sectors such as the automotive industry. Moreover, the transition to electric vehicles also poses a risk to Mercedes. Although Mercedes has made good headway on this front, with its all-electric vehicle sales roughly doubling to 117,800 units in 2022, Tesla is well ahead. For perspective, while Mercedes delivered about 2 million vehicles in total in 2022, Tesla’s total EV sales could approach 2 million units his year. Moreover, the barriers to entry in the EV space are also not too high, and this could mean that Mercedes will face a lot more competition going forward.  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 Mar 2023
MTD [1]
YTD [1]
Total [2]
 MBGAF Return -12% 4% 22%
 S&P 500 Return 1% 4% 79%
 Trefis Multi-Strategy Portfolio -1% 6% 234%
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[1] Month-to-date and year-to-date as of 3/22/2023
[2] Cumulative total returns since the end of 2016

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