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Mercedes-Benz Group: Exceptional Pricing Power Supports Bullish Thesis

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Thesis

Mercedes-Benz Group AG (OTCPK:MBGAF) closed FY 2022 pinch beardown Q4 results, comfortably beating expert estimates pinch regards to some revenues and earnings. Moreover, though nan 2023 outlook remains clouded by macro economical uncertainty, Mercedes guidance confidently guided for profitability akin to 2022 levels--which would connote a one-year guardant EV/EBIT valuation of adjacent to x7.

Reflecting connected Mercedes' so-far successful strategy to attraction connected much profitable car models, paired pinch crisp value increases crossed nan merchandise portfolio, I upgrade my EPS expectations for nan Mercedes-Benz done 2025; and I now cipher a adjacent implied stock value adjacent to $135.41 (MBGAF reference). Mercedes-Group remains a "Buy."

For reference, Mercedes banal is down astir 9% for nan past 12 months, successful statement pinch nan S&P 500 Index (SP500).

Mercedes-benz vs SPY 12 months performance

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Reflections On Mercedes-Benz' Strong 2022

Despite macroeconomic headwinds, Mercedes-Benz performed well successful 2022. During nan period from January to extremity of December 2022, nan German carmaker recorded revenues of EUR 150 billion, reflecting a 12% year-over-year description arsenic compared to EUR 133.9 cardinal for nan aforesaid play 1 twelvemonth earlier (revenue from continuous cognition reference). Similarly, nan group's net earlier liking and taxes (EBIT) jumped by 28%, to EUR 20.5 billion, easy outpacing gross maturation and expert expectations of astir EUR 18.2 cardinal (early 2022 estimate reference according to information compiled by Bloomberg).

Mercedes-Benz Q4 2022 Reporting - Results

Mercedes-Benz Q4 2022 Reporting

Notably, Mercedes-Benz' beardown 2022 was driven by some measurement (2.45 cardinal units successful 2022, versus 2.32 cardinal successful 2021) and pricing power. In fact, Mercedes-Benz' pricing powerfulness is thing that cannot beryllium highlighted enough: since 2019, nan value for nan mean Mercedes-Benz car surged by 43%, increasing from astir EUR 51,000 successful December 2019 to astir EUR 72,900 arsenic of 2022. No matter really you measurement inflation, Mercedes-Benz did an fantabulous occupation protecting nan company's profitability against inflationary pressures.

Mercedes-Benz' CEO Ola Källenius commented:

We person redesigned Mercedes-Benz to beryllium a much profitable institution acknowledgment to our attraction connected desirable products and disciplined separator and costs management. We cannot power macro aliases world events, but 2022 is simply a lawsuit successful constituent that we are moving successful nan correct direction.

Mercedes-Benz 2022 Investor Presentation - Pricing Power

Mercedes-Benz 2022 Investor Presentation

On nan backdrop of beardown 2022 rate generation, pinch free rate travel business business EUR 8.13 billion, Mercedes announced that nan institution would commencement a two-year EUR 4 cardinal stock buyback program.

Confidently Stepping Into 2023

Although Mercedes-Benz guidance noted an "exceptional grade of uncertainty regarding geopolitical and macroeconomic developments"...

such arsenic nan warfare successful Ukraine, nan improvement of waste and acquisition betwixt China nan European Union and nan United States, and nan further people of nan COVID-19 pandemic. These whitethorn effect proviso chains and nan improvement of prices for earthy materials and energy. In addition, continued inflationary unit for consumers and companies and nan associated cardinal slope increases successful liking rates, arsenic good arsenic a much pronounced maturation slowdown successful nan economy, make nan outlook much difficult. The worldwide shortage of semiconductors is easing, nevertheless individual issues remain, causing proviso constraints.

... nan institution provided an wide beardown guidance for FY 2023. According to Q4 reporting arsenic of February 17th, guidance estimates that revenues for 2023 will beryllium astir successful statement pinch nan 2022 number, and net earlier liking expenses and taxes will only beryllium somewhat little than nan EUR 20.5 cardinal achieved successful 2022. In that context, Mercedes-Benz models that nan company's premium vehicles will proceed to summation stock successful nan sales--mostly owed to beardown request for nan brand's caller EQS SUV and Mercedes-Maybach EQS SUV. Moreover, Mercedes-Benz besides sees bully momentum successful nan company's electrification strategy, estimating that income of artillery electrical vehicles (BEV) could apt double arsenic compared to 2022. Finally, Mercedes-Benz CEO Ola Källenius suggested that nan marketplace successful China could apt rebound successful 2023, adding portion measurement to nan company's topline.

Valuation Update: Raise Target To $135.41

Anchored connected guidance from Mercedes-Benz management, I estimate that nan group's EPS successful 2023 will apt autumn location betwixt $12.5 to $12.90. Moreover, I besides update my EPS expectations for 2024 and 2025, to $13.40 and $14.10, respectively.

While I proceed to anchor connected a 10 costs of capital, I raise my terminal maturation estimate for Mercedes-Benz to a reasonable, but still conservative, 1.25%. Reflecting connected Mercedes-Benz advances into electrified and connected driving I do not judge that my erstwhile 0% maturation estimate makes consciousness anymore.

Given nan EPS upgrades arsenic highlighted below, I now cipher a adjacent implied stock value of $135.41 (MBGAF reference).

(topline numbers item my post-Q1 2022 assumptions.)

Mercedes-Benz valuation

Author's EPS Estimates and Calculation

Below is besides nan updated sensitivity table.

Mercedes-Benz valuation sensitivity table

Author's EPS Estimates and Calculation

Risks

As I spot it, location has been nary awesome risk-updated since I person past covered Mercedes-Benz Group AG stock. Thus, I would for illustration to item what I person written before:

As for different car OEMs, akin downside risks use to Mercedes-Benz: 1 slowing user assurance globally, and particularly Europe, owed to ostentation outpacing costs growth; 2) geopolitical risks including nan Ukraine warfare and Mercedes-Benz's vulnerability to China adhd to business uncertainty; 3) supply-chain challenges including semiconductor shortages, which could go moreover much challenging owed to nan COVID-19 lockdowns successful China; 4) higher than expected CAPEX and R&D investments successful bid to recognize nan strategical repositioning towards an electrical mobility provider; 5) timid EV take owed to concerns astir nan EV exertion and charging infrastructure build-up; 6) macroeconomic uncertainty relating to nan monetary argumentation actions of nan ECB and actions of nan European/German authorities against Russia; 7) expanding title pinch different premium brands specified arsenic Tesla (TSLA), Porsche (OTCPK:POAHY) aliases BMW could effect Mercedes-Benz pricing powerfulness much than expected.

Conclusion

Despite macroeconomic headwinds, Mercedes-Benz Group AG performed good successful 2022, accumulating an EBIT of adjacent to EUR 20.5 billion. Although nan 2023 outlook remains clouded by macroeconomic uncertainty, Mercedes guidance confidently guided for profitability akin to 2022 levels. The Mercedes-Benz Group AG 2023 outlook is supported by exceptional pricing power, continued costs discipline, arsenic good arsenic a apt request rebound successful China.

I upgrade my EPS expectations for nan Mercedes-Benz done 2025; and I now cipher a adjacent implied stock value adjacent to $135.41 (MBGAF reference).

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

Cavenagh Research floor plan picture

5y acquisition arsenic an finance expert for a awesome BB-Bank. Currently moving towards nan CFA charter. Passion for risk-assets (Growth, Contrarian, Emerging Market) ex-colleague and adjacent friend of Investor Express

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: not financial advise

Editor: Naga



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