Daimler Facing The Challenges

Daimler AG (DAI) is a leading auto and truck producer headquartered in Stuttgart, Germany. It develops, manufactures, distributes and sells passenger cars, light trucks and commercial vehicles. It also provides financial and other services relating to its automotive business.

In the third quarter, earnings per share were at $0.27, as compared to a loss of $1.90 in the prior-year quarter. Revenues declined 7% year over year to $30.7 billion. Total units sold in the quarter decreased 3% to 522,500. Mercedes Car Group sales decreased 6% to 315,800 vehicles. The decrease in earnings was primarily due to the abrupt decline in sales in the NAFTA region as well as in the major European markets.

Currently, Daimler AG shares are trading at a P/E multiple of 4.7x our 2008 earnings estimate of $6.39, which is below the industry median of 7.2x. The company’s efficiency improvement measures inspire our optimism about the stock. However, the company is facing many challenges including exchange rate fluctuations, weak auto pricing, rising raw material costs, as well as a slowing U.S. economy.

Thus, we rate the stock a Hold and set a six-month target price of $32.00, based on a P/E multiple of around 5.0x our 2008 earnings estimate.

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