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02 Feb, Thursday
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Bull Trader USA

Volkswagen and Porsche’s Earnings Don’t Make a Lot of Sense. The Numbers, Explained.

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Investors should ask themselves why Volkswagen is worth nothing when its stake in Porsche is backed out.

AFP via Getty Images

European auto makers


Volkswagen

and


Porsche

both reported third quarter numbers Friday and making sense of the numbers is a challenge. Sometimes the market doesn’t make sense.

VW (ticker: VOW3.Germany) reported $4.3 billion in third quarter operating profit. Wall Street was looking for $4.5 billion. Shares are down 3.8% in overseas trading.

The stock dropping on an earnings miss isn’t surprising.


Volkswagen

didn’t change full year financial guidance and still plans to make roughly 20 billion in operating profit in 2022.

Financial guidance hasn’t changed, but delivery guidance has. Back in July, Volkswagen believed total deliveries in 2022 would rise 5% to 10% compared with the 2021 total of 8.9 million units. Now the company expects 2022 deliveries to be the same as 2021. Supply chain constraints are to blame.

Despite that headwind VW’s EV business continued to expand in the quarter. Battery electric vehicles amounted to 6.8% of total VW deliveries. Year to date, VW has delivered 366,400 EVs, up from 293,000 delivered in the same period of 2021. China accounted for 112,700 of those 2022 EV deliveries. VW’s Chinese EV sales are up 139% so far in 2022 compared with the same span of 2021.

As for


Porsche
,
in its first quarter as a publicly traded company, it reported about $1.5 billion in operating profit. That’s a little better than the Street was expecting. Shares were down in overseas trading, but have rallied and are now up about 0.5%.

The initial drop is a small part of what’s difficult to understand about Porsche and VW numbers. The far larger conundrum remains valuation.

With today’s moves. Volkswagen stock, less the share of Porsche it owns, is worth almost nothing–about $1 billion. Porsche has a market capitalization of roughly $91 billion. VW owns about 80% of that stock, or almost $73 billion. And Volkswagen’s entire market capitalization is about $74 billion.

(Adjusted for debt makes things look worse, it makes VW as an entity worth less than zero.)

That value is despite estimates that VW operating profit in 2022, excluding all of Porsche’s earnings, should come to $13 billion or $14 billion.

A company trading for 0.07 times 2022 operating profit ($1 billion divided by $13.5 billion) is hard to reconcile. Porsche trades for roughly 15 times operating profit. Luxury brands, of course, get higher valuations.


Ferrari

(RACE) trades for about 30 times estimated 2022 operating profit. But still, 0.07 times? What’s more, VW has luxury businesses excluding Porsche. It owns Audi.

Third quarter numbers weren’t a catalyst for investors to re-evaluate the odd situation. Maybe current valuations are an opportunity. They look that way. But it’s hard to argue with the market and win. Still, sometimes the market is wrong.

S&P 500
and

Dow Jones Industrial Average
futures are down 0.5% and 0.1%, respectively.

Write to Al Root at allen.root@dowjones.com

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