Citi Previews September Auto Sales Data

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Previewing the monthly auto sales results for September in a research note on Tuesday, Citi said the seasonally adjusted annual rate of sales is running in the mid-17 million range, above the 16.9 million-unit rate for August.

Strong SAAR

Citi's Itay Michaeli noted that incentives, which were aggressive early in the month, cooled off toward the end of the month. However, the analyst also noted industry average transaction prices appear to be running slightly higher, given the strong mix.

Discounts Help, Mix Strong

Among vehicle categories, the analyst noted picks-ups and mid-size SUVs are doing well and this bodes well for General Motors Company GM and Ford Motor Company F, which are experiencing pricing growth more than the industry. Accordingly, the firm believes that September SAAR is trending at a strong rate, with support from incentives, the negative impact of which will be offset by a strong mix.

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Citi also noted that auto companies are up against a strong year-over-year comparison, given the 18 million-unit pace of September last year. While noting that the monthly sales results are due on October 3, Citi said auto stocks have recently reacted negatively to the release irrespective of the results.

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Cheer For OEMs

As far as OEMs are concerned, Citi noted that September SAAR could help reduce inventory levels, heading into the fourth quarter. The firm also reminded that both GM and Ford reaffirmed their 2016 guidance earlier this month.

  • Ford: $13 price target (based on an average of EV/EBITDAP and P/E valuation on Citi's 2016 earnings per share estimate).
  • General Motors: $50 price target (based on 5.5 times its 2016 adjusted EBITDAP of $13 billion, with the valuation raised from 4.5 times previously, given Citi's increasing confidence in the company's positioning for capturing future new and large mobility opportunities).

At time of publication, Ford was down 0.25 percent at $11.98, while GM was down 0.41 percent at $31.67.

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