A New Auto Giant Emerges. Its Stock Could Have 30% Upside. - Barron's

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A sign at the FCA US Headquarters and Technology Center as it is changed to... — A sign at the FCA US Headquarters and Technology Center as it is changed to Stellantis in Auburn Hills, Mich.
Jeff Kowalsky/AFP via Getty Images

Poof—just like that—a giant auto maker has been created. And Wall Street likes the stock. Investors would be wise to get up to speed on the new company.

The car company is Stellantis (ticker: STLA), though the name doesn’t give any hints to its creation. It is the result of the Fiat Chrysler merger with Peugeot. So, in a sense, Stellantis is one of the original Detroit Three auto makers, which include General Motors (GM) and Ford Motor (F).

A lot has changed since the D-3 ruled the automotive world. Chrysler, for instance, merged, demerged, and merged again with others. General Motors went bankrupt during the financial crisis.

What’s more, an electric-vehicle start-up, Tesla (TSLA), is now the world’s most valuable auto maker. Tesla has been around for years, but compared with the centurylong history of Ford, GM, and Chrysler, it’s still a pup.

Tesla shipped about 500,000 vehicles in 2020. Stellantis will have shipped about 8 million, making it the third, or fourth, largest auto maker on the planet, depending on the time frame used for measurement. Don’t forget, 2020 was a dreadful, pandemic-affected year for most car companies. Volumes fell for most of them, except Tesla.

Now that the merger is complete, analysts are weighing in on the stock. J.P. Morgan’s Jose Asumendi launched coverage of the company Wednesday with a Buy rating and an 18-euro price target, which works out to about $21.78. That’s a 30% implied gain.

Asumendi argues the two legacy firms complement each other in terms of product lineup and geographic reach. Fiat, for instance, lost money in Europe. Peugeot will help with that. Peugeot wasn’t a major player in North America. Chrysler is.

He also believes the larger entity can cut costs and streamline capital spending. “The annual industrial synergies are expected to be in excess of €5bn, with approximately 80% of synergies to be achieved after four years from the closing of the Merger,” writes the analyst. The company will spend about €4 billion to reach those synergies. Those, in theory, are one-time costs for permanent gains.

The rest of his peers seem to agree. About 70% of analysts covering the stock rate shares Buy. The average Buy rating ratio for stocks in the Dow Jones Industrial Average is about 57%. The average analyst target price works out to about $18.50 a share.

Stellantis shares are down 3.1%, at $16.53, in midday trading Thursday. The S&P 500 is flat.

Stellantis stock is down more than 8% year to date. That’s in stark contrast with the other two D-3 stocks. GM shares are up more than 36%. Ford stock is up more than 34%. Investors are starting to value those companies’ autonomous and electric-vehicle investments more highly. With the merger done, Stellantis should start to talk to its investors about its own EV plans.

Write to Al Root at allen.root@dowjones.com

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