Barron's
#1
07-11-2004, 09:29 AM
Barron's
Monday, July 12, 2004
Car Trouble?
Porsche shares are rich, but the German company's sales growth is stalling
By VITO J. RACANELLI
AS PORSCHE PREPARES TO INTRODUCE the latest version of its signature 911 sports car, the famous German auto maker looks invincible to many investors. The new $69,300 Carrera will be rolled out in Europe on Saturday, and hits American showrooms Aug. 28. High praise in the automotive press has accompanied the launch, and the excitement has spilled over into the stock market, where Porsche's nonvoting preferred shares, traded in Frankfurt, recently hit a record €588 ($728).
The buzz is building as Porsche basks in the surprising success of its Cayenne luxury sport-utility vehicle, whose sales have defied the skeptics, Barron's included. Porsche is likely to sell 35,000 SUVs in its 2004 fiscal year, ending this month, boosting total sales to 75,000, 40% above fiscal 2002's level. Next year, many observers have penciled in 40,000 Cayenne unit sales.
Porsche's financial situation looks as good as its sales trends. It posted net income of €565 million, or €32.26 a share, for fiscal '03, on sales of €5.6 billion, and analysts estimate fiscal '04 earnings will reach €38. In an interview, Porsche's genial, cigar-chomping CEO, Wendelin Wiedeking, said this year would mark another record in revenue and earnings, while the cash position will be "much better than last year's" €1.4 billion. He declined to give specific figures. Porsche has almost no debt.
The shares reflect the good times -- and then some. From a low of €248.73 in March 2003 -- and a mere €19 when Wiedeking took over in 1992 -- the stock rallied to a high of €588, and now trades at €543.
Yet, for all Porsche's seeming strength, the stock might have peaked. The Cayenne's accelerating growth, now nearly over, masked two years of steep sales declines for the 911 and the company's third model, the Boxster.
Also, currency hedges designed to protect Porsche's earnings from the ravages of a weak dollar expire by mid-2007. If the greenback doesn't rebound against the euro, or keeps sliding, profit is vulnerable to unfavorable currency translation -- a circumstance that has hurt Germany's Volkswagen and DaimlerChrysler in the past two years. Neither has hedged its currency risk as much as Porsche, which derives 40% to 45% of its revenue from the U.S.
While the Carrera should be popular, analysts expect Porsche to sell only 25,000 911-series cars this fiscal year, down from '02's peak of 32,337. Porsche sold 18,986 in the 10 months ended May 31, 20% below a year earlier. In that span, the company sold 31,896 Cayennes and 10,490 Boxsters (down 34%).
Wiedeking thinks fiscal '04 will be the low point in the 911 sales cycle, though he admits "markets aren't as strong these days" as in the boom years of 2001-'02. "So we have to cross our fingers."
The Cayenne, meanwhile, could be running out of gas. For the three-month period ended June, sales of the eight-cylinder Cayenne S (priced at $56,300) slid 33% from a year earlier, and sales of the Turbo ($89,300) fell 22%. Sales of the cheaper V6-engine Cayenne ($41,100) are buoyant, but the model was unveiled more recently; its one-year U.S. sales anniversary will be in January. By then, Cayenne sales won't be able to compensate for shortfalls elsewhere.
Wiedeking, however, doesn't concur. He says sales of his pricey SUV "are stable. We are at the peak of our production capacity, and this will happen next year as well."
Porsche fans are waiting for good Boxster news to drive the stock higher, perhaps as soon as September's Paris Auto Show. But Stephen Cheetham, an analyst at Sanford C. Bernstein, notes the low-margin Boxster, the company's slowest-selling model, is aimed at a competitive, fashion-conscious market. U.S. sales of sports cars in the $35,000-to-$45,000 niche have fallen. Another famed German auto maker, BMW, offers $3,500 to $4,500 incentives on its Z4 roadster, introduced two years ago. And early indications are that the new Boxster won't look much different from the old one, which could dim its appeal. Meanwhile, Cheetham thinks sales of the 911 Carrera will be merely "okay."
Wiedeking is mum about revamping the eight-year-old Boxster, but notes the sticker price won't be much higher than the current version's. The new Carrera will cost just 1% more than the previous model, consistent with Porsche's philosophy of "increasing value and keeping prices under pressure," he says.
A fourth model -- probably a four-seater with two or four doors -- also could drive Porsche's profits and shares, though it wouldn't be on the market until 2006-'07. Wiedeking won't discuss the company's plans, save to note that a decision about another model will come in the next year. It could be years, however, before a new model fattens the bottom line, given the heavy investment involved.
In the meantime, Porsche's currency-hedging policies, about which the company has said little, worry some analysts and investors. The company is rumored to have hedged its sales below 90 cents to the euro, a fortuitous move as the dollar's value has slid to $1.23 per euro.
According to Goldman Sachs analyst Keith Hayes, the salubrious effects of currency translation will account for 60% to 80% of Porsche's fiscal '04 earnings before interest payments and taxes, though other industry sources say the impact is closer to 60%. In any event, the quality of the company's earnings is far lower than the market has assumed, and the benefit is short-term in nature. Hayes says the hedge overestimates the underlying auto business' strength.
When its hedge expires, Porsche might be unable to renew it at a favorable exchange rate. "If the dollar remains unchanged [against the euro], they have a major earnings problem in two years," Hayes says. Porsche repeatedly has declined to elaborate on its hedging, but says further cost efficiencies and productivity increases could help to offset negative currency developments.
Porsche sells for 13-14 times fiscal '05 estimated earnings of about €40 a share. The stock is richly priced, compared with BMW, which sports a price-earnings multiple of 10, and other European car makers, which trade at an average multiple of 9. Without the effects of currency hedging, however, the stock sells for more than 40 times earnings, says Goldman's Hayes.
Bernstein's Cheetham puts Porsche's fair value at €450 a share, about 17% below its current price, based on a median P/E of 12.5. A decline of that magnitude, or more, wouldn't be surprising, given the stock's volatile history.
Since 1998, Porsche has plummeted four times, by 25% to 67%, sometimes in a matter of weeks. It has often paid to sell the shares when Porsche's prospects appear the rosiest, and buy them back when the company is bathed in gloom. Rarely has Porsche looked better -- but looks can be deceiving.
http://online.wsj.com/barrons/articl...160317,00.html
Car Trouble?
Porsche shares are rich, but the German company's sales growth is stalling
By VITO J. RACANELLI
AS PORSCHE PREPARES TO INTRODUCE the latest version of its signature 911 sports car, the famous German auto maker looks invincible to many investors. The new $69,300 Carrera will be rolled out in Europe on Saturday, and hits American showrooms Aug. 28. High praise in the automotive press has accompanied the launch, and the excitement has spilled over into the stock market, where Porsche's nonvoting preferred shares, traded in Frankfurt, recently hit a record €588 ($728).
The buzz is building as Porsche basks in the surprising success of its Cayenne luxury sport-utility vehicle, whose sales have defied the skeptics, Barron's included. Porsche is likely to sell 35,000 SUVs in its 2004 fiscal year, ending this month, boosting total sales to 75,000, 40% above fiscal 2002's level. Next year, many observers have penciled in 40,000 Cayenne unit sales.
Porsche's financial situation looks as good as its sales trends. It posted net income of €565 million, or €32.26 a share, for fiscal '03, on sales of €5.6 billion, and analysts estimate fiscal '04 earnings will reach €38. In an interview, Porsche's genial, cigar-chomping CEO, Wendelin Wiedeking, said this year would mark another record in revenue and earnings, while the cash position will be "much better than last year's" €1.4 billion. He declined to give specific figures. Porsche has almost no debt.
The shares reflect the good times -- and then some. From a low of €248.73 in March 2003 -- and a mere €19 when Wiedeking took over in 1992 -- the stock rallied to a high of €588, and now trades at €543.
Yet, for all Porsche's seeming strength, the stock might have peaked. The Cayenne's accelerating growth, now nearly over, masked two years of steep sales declines for the 911 and the company's third model, the Boxster.
Also, currency hedges designed to protect Porsche's earnings from the ravages of a weak dollar expire by mid-2007. If the greenback doesn't rebound against the euro, or keeps sliding, profit is vulnerable to unfavorable currency translation -- a circumstance that has hurt Germany's Volkswagen and DaimlerChrysler in the past two years. Neither has hedged its currency risk as much as Porsche, which derives 40% to 45% of its revenue from the U.S.
While the Carrera should be popular, analysts expect Porsche to sell only 25,000 911-series cars this fiscal year, down from '02's peak of 32,337. Porsche sold 18,986 in the 10 months ended May 31, 20% below a year earlier. In that span, the company sold 31,896 Cayennes and 10,490 Boxsters (down 34%).
Wiedeking thinks fiscal '04 will be the low point in the 911 sales cycle, though he admits "markets aren't as strong these days" as in the boom years of 2001-'02. "So we have to cross our fingers."
The Cayenne, meanwhile, could be running out of gas. For the three-month period ended June, sales of the eight-cylinder Cayenne S (priced at $56,300) slid 33% from a year earlier, and sales of the Turbo ($89,300) fell 22%. Sales of the cheaper V6-engine Cayenne ($41,100) are buoyant, but the model was unveiled more recently; its one-year U.S. sales anniversary will be in January. By then, Cayenne sales won't be able to compensate for shortfalls elsewhere.
Wiedeking, however, doesn't concur. He says sales of his pricey SUV "are stable. We are at the peak of our production capacity, and this will happen next year as well."
Porsche fans are waiting for good Boxster news to drive the stock higher, perhaps as soon as September's Paris Auto Show. But Stephen Cheetham, an analyst at Sanford C. Bernstein, notes the low-margin Boxster, the company's slowest-selling model, is aimed at a competitive, fashion-conscious market. U.S. sales of sports cars in the $35,000-to-$45,000 niche have fallen. Another famed German auto maker, BMW, offers $3,500 to $4,500 incentives on its Z4 roadster, introduced two years ago. And early indications are that the new Boxster won't look much different from the old one, which could dim its appeal. Meanwhile, Cheetham thinks sales of the 911 Carrera will be merely "okay."
Wiedeking is mum about revamping the eight-year-old Boxster, but notes the sticker price won't be much higher than the current version's. The new Carrera will cost just 1% more than the previous model, consistent with Porsche's philosophy of "increasing value and keeping prices under pressure," he says.
A fourth model -- probably a four-seater with two or four doors -- also could drive Porsche's profits and shares, though it wouldn't be on the market until 2006-'07. Wiedeking won't discuss the company's plans, save to note that a decision about another model will come in the next year. It could be years, however, before a new model fattens the bottom line, given the heavy investment involved.
In the meantime, Porsche's currency-hedging policies, about which the company has said little, worry some analysts and investors. The company is rumored to have hedged its sales below 90 cents to the euro, a fortuitous move as the dollar's value has slid to $1.23 per euro.
According to Goldman Sachs analyst Keith Hayes, the salubrious effects of currency translation will account for 60% to 80% of Porsche's fiscal '04 earnings before interest payments and taxes, though other industry sources say the impact is closer to 60%. In any event, the quality of the company's earnings is far lower than the market has assumed, and the benefit is short-term in nature. Hayes says the hedge overestimates the underlying auto business' strength.
When its hedge expires, Porsche might be unable to renew it at a favorable exchange rate. "If the dollar remains unchanged [against the euro], they have a major earnings problem in two years," Hayes says. Porsche repeatedly has declined to elaborate on its hedging, but says further cost efficiencies and productivity increases could help to offset negative currency developments.
Porsche sells for 13-14 times fiscal '05 estimated earnings of about €40 a share. The stock is richly priced, compared with BMW, which sports a price-earnings multiple of 10, and other European car makers, which trade at an average multiple of 9. Without the effects of currency hedging, however, the stock sells for more than 40 times earnings, says Goldman's Hayes.
Bernstein's Cheetham puts Porsche's fair value at €450 a share, about 17% below its current price, based on a median P/E of 12.5. A decline of that magnitude, or more, wouldn't be surprising, given the stock's volatile history.
Since 1998, Porsche has plummeted four times, by 25% to 67%, sometimes in a matter of weeks. It has often paid to sell the shares when Porsche's prospects appear the rosiest, and buy them back when the company is bathed in gloom. Rarely has Porsche looked better -- but looks can be deceiving.
http://online.wsj.com/barrons/articl...160317,00.html
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#4
07-12-2004, 01:05 AM
Or, if you're looking for something to display, try http://www.oneshare.com/
I've used them for gifts before and they do a good job and the price is reasonable, but I don't know if they do foreign stocks.
I've used them for gifts before and they do a good job and the price is reasonable, but I don't know if they do foreign stocks.
