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Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) aren’t just car companies. In fact, Citi analyst Itay Michaeli believes that pickup trucks play a much more important part in the two companies’ bottom lines than many seem to appreciate.
In fact, Citi estimates that trucks account for up to two-thirds of Ford and GM’s North American profits.ENTER TO WIN $500 IN STOCK OR CRYPTO
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“What’s surprised us most over these three years is that—despite very strong pickup truck performance – the street seemingly settled on simplistic explanatory storylines like 'housing'—implying that pickup strength wasn’t & isn’t anything special or unique,” Michaeli explained.
Citi still sees pent-up demand for pickup trucks, an indication that GM and Ford have some high-margin earnings growth ahead. Citi estimates that the pickup installed base has grown at a compound annual rate of about 3.0 percent since 2001, while the light-vehicle market has growth at less than 1.0 percent annually.
Michaeli believes that the pickup truck earnings of these companies most closely resemble those of Class 8 Original Equipment and Industrial stocks and should be valued as such. Citi calculated sum-of-the-parts valuations for GM and Ford based on a 15x multiple on North American pickup earnings.
According to Michaeli, this sum-of-the-parts valuation indicates that GM’s stock is worth $44, while Ford’s is worth $15.
Citi maintains a Buy rating on GM and a Neutral rating on Ford.
Disclosure: The author holds no position in the stocks mentioned.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.