Fiat Chrysler Is Now BofA's Least Favorite Of The Detroit Three, Downgrades To Underperform

Fiat Chrysler Automobiles NV FCAU reported its 1Q results ahead of expectations. BofA Merrill Lynch’s John Murphy downgraded the rating for the company from Neutral to Underperform, while maintaining the price objective at $9. The analyst commented that although Fiat Chrysler was making significant progress in its turnaround, it continued to lag peers on key metrics.

Fiat Chrysler is behind its peers in terms of product portfolio, rationalized platforms, cost base and balance sheet strength, analyst John Murphy said. He added that the main concern was that the company had “significant leverage versus its cross-town rivals,” and its turnaround would take time before the company could realize sustainable benefits.

Good Going In Terms Of Numbers

Fiat Chrysler reported its adjusted EBIT at €1.38bn, versus the BofA estimate of €1.29bn and consensus expectation of €1.23bn. The beat was driven by favorable volumes and mix in North America, “as the company’s Jeep/Ram products continue to benefit from the industry shift towards trucks and crossovers,” Murphy noted.

Fiat Chrysler is likely to continue executing amid a relatively favorable macro environment, which is expected to persist through 2018. Hence, the automaker is expected to continue generating strong results through this period.

Murphy added, however, Fiat Chrysler’s free cash burn in 1Q was “somewhat of a concern,” as was the deterioration in its net debt positon.