Freightliner's Road Is Clearer Without Mercedes-Benz -- Heard on the Street
By Stephen Wilmot
It is a nice time to have the world's biggest truck business in
your back pocket.
German automotive giant Daimler, best known for making
Mercedes-Benz cars, on Thursday gave investors a preview of what
its heavy-truck unit will look like once it becomes an independent
company toward the year-end. Daimler Trucks, whose crown jewel is
the U.S. Freightliner brand, has a clear mission to raise its
subpar margins, particularly in Europe. The job may take time, but
will be harder for management to shirk once the business breaks out
its full financial figures by region and has its own stock.
The math behind both the spinoff and the case for buying
Daimler's stock is simple. If you apply the stock-market valuation
of BMW to Mercedes-Benz and that of Swedish truck maker Volvo AB to
Daimler Trucks, you get a much higher number than Daimler trades
for today. Even applying a 10% discount to Daimler Trucks to
account for its lower margins, brokerage Jefferies calculates a
share price of EUR95, equivalent to about $116, compared with EUR75
at Thursday's close. If the margins rise as promised, there will be
There are two wrinkles. One is that this math is partly based on
Volvo's soaring stock price, the fruit of an unusually fertile
environment for truck sales. Demand for household goods bounced
back after last year's pandemic faster than most people expected,
leading to widely documented bottlenecks in supply chains.
Daimler's trucking clients are key beneficiaries of the tight
Full order books are reassuring, but in the infamously cyclical
trucking market, it is wise to assume that the operating
environment gets worse from here. One offset might come from the
Biden administration's spending plans: The company hopes its new
Western Star 49X off-highway truck will benefit from an
The longer-term worry, as in the car market, is the combination
of new regulation and technology. Daimler is betting on both
battery electric trucks and hydrogen fuel cells to reduce its
carbon emissions in line with tightening targets set by the
European Union for 2025 and 2030. Investing in two novel powertrain
systems will be expensive.
The good news is that, for now, Daimler and other incumbent
truck makers still seem to dominate the technologies, relatively
free from disrupters. Nikola, the would-be Tesla of trucking and
former stock-market star, poses little obvious threat.
Decarbonization will likely become a bigger concern as
regulatory deadlines draw closer in a few years' time. European
spinoffs have historically made investors money, particularly
before their completion, according to a Morgan Stanley analysis.
There is no reason to think Daimler Trucks will be different.
Write to Stephen Wilmot at firstname.lastname@example.org
(END) Dow Jones Newswires
May 20, 2021 14:41 ET (18:41 GMT)
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