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Stock Analyst Update

Daimler: A Luxury Brand On Sale

Shares of the no-moat automaker are about 15% undervalued relative to our forecast for cash flows and returns.

No-moat-rated  Daimler AG (DDAIF), maker of Mercedes-Benz luxury vehicles as well as Mercedes-Benz and Freightliner commercial trucks and buses, published a press release stating that preliminary first-quarter EBIT results were above market expectations. We calculated that the industrial margin (excludes financial services) was 9.7%, up from 7.7% a year ago. The result is not far from our full-year estimated margin of 9.4%, which is up from 2016 EBIT margin of 9.3%.

While we are encouraged by the improved year-over-year margin performance, we currently see no reason to raise our full-year forecast. First and second quarters are typically the seasonally strongest ones for automakers, with the third quarter being the seasonal low and a fourth quarter that can be seasonally volatile as manufacturers balance between holiday shutdowns and adjusting inventories for the year ahead.

However, we view the 4-star-rated shares of Daimler as undervalued relative to our forecast for cash flows and returns. The stock currently trades at more than a 15% discount to our fair value estimate.

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Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.