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Stock Strategist

Market Misses Daimler's Operational Strength

We think the maker of Mercedes is undervalued.

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 Daimler (DDAIF)/(DAI) reported slightly lower earnings per share before special items of EUR 2.38 in its third quarter, down EUR 0.03 from the year-ago period but EUR 0.36 ahead of the consensus of EUR 2.02. Management refused to comment or answer any questions regarding the ongoing investigation of German automaker collusion. However, the company did say it petitioned European antitrust regulators to act as a principal witness in the case and, as such, to be exempt from potential fines.

We think the market reaction to Daimler's third-quarter results missed the underlying strength of the operations, excluding special items. Including charges of EUR 223 million for a diesel recall and EUR 230 million for a recall related to Takata airbags in the Mercedes car group, plus a EUR 70 million restructuring charge in the truck group, as-reported EPS came in at EUR 2.03. Daimler’s shares are undervalued, in our view, relative to our estimates for future cash flow and returns on invested capital.

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