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Stock Strategist

VW's Shakeup Just What the Doctor Ordered

We think this no-moat company’s shares are undervalued.

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 Volkswagen’s (VLKAY)/(VLKPY) recent sweeping management changes are meant to accelerate cost savings and technological development and could open the door to at least a partial public offering of its heavy truck business. Herbert Diess, a former BMW executive, will be the new group CEO. Also, Volkswagen has reorganized into six operating groups: volume, premium, superpremium, China, heavy truck, and financial services. We view Volkswagen’s stock as attractively valued relative to our forecast for revenue, cash flow, and returns on invested capital.

While former CEO Matthias Mueller had been under fire for the pace of change, we were somewhat surprised by his ouster because he had been credited with bringing about cultural change across the group and praised for his successful handling of the diesel crisis. Even so, we think the dramatic changes by the supervisory board in the composition of the management board and the company’s organizational structure will hasten cost-saving measures and enable relatively more nimble execution at a time of industry disruption from mobility services, autonomous driving, and vehicle electrification--just what the doctor ordered.

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