Despite posting an increase in the fiscal 2016 fourth-quarter revenue, compared with last year, the stock of automaker Fiat Chrysler Automobiles N.V. (NYSE: FCAU) has so far appreciated only by about 5% to $11.38. One of the reasons for the poor performance of the stock is lower than anticipated Q4 earnings. However, as explained underneath, there are several other equally important factors that keep the stock in a bearish orbit.
The Italian-controlled Dutch multi-national corporation reported an increase in the fourth-quarter 2016 net revenues to €29.72 billion ($31.40 billion), from €29.41 billion in the similar period last year. Analysts had expected Fiat to report revenues of $31.32 billion.
For the fourth quarter, the owner of Alfa Romeo and Maserati brands recorded a Q4 adjusted net profit of €539 million, down 48% from €1.04 billion in the similar period last year. On a per-share basis, the adjusted 4Q16 earnings declined to €0.35 ($0.37) per share, from €0.686 per share in 4Q15, and below the consensus estimates of $0.39 per share.
The adjusted EBIT (Earnings before Interest and Taxes) increased 1% y-o-y to €1.55 billion. The overall debt of the company has declined to €24.05 billion in fiscal 2016, from €27.79 in fiscal 2015. However, it is still on the high side.
The frequent product recalls continue to adversely affect the performance of the company. Thus, Fiat issued lackluster FY17 revenue and earnings estimate. The company now anticipates full-year 2017 revenue to be in the range of €115 billion to €120 billion ($123.4 billion to $128.8 billion). Fiat also expects an adjusted net profit of at least €3 billion ($3.2 billion) for fiscal 2017.
The company is now being investigated by the Environmental Protection Agency for the alleged use of a defeat device – software used for manipulating the emission output of cars in test conditions – in its cars. If found true, based on the penalty paid by Volkswagen (VLKAY), Fiat may have to pay a fine of about $4 billion. Thus, investors would be wary of adding positions in Fiat at this point in time.
The stock made several unsuccessful attempts to cross the level of 11.50 during the last week. The stochastic oscillator has turned downwards. This indicates a lack of momentum in the stock. Thus, we can anticipate a correction in the share price of Fiat.
An equivalent of a short position in the Fiat stock can be created by investing in a put option. The investment is advisable when the underlying price of the stock is above $11.30 (as quoted in the binary platform). The validity period of the contract should be around seven trading days.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
