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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