DaimlerChrysler upgraded to "accumulate"

16.02.07 - AC Research

LONDON, February 16 (newratings.com) ? Analyst Henning Wagener of AC Research upgrades DaimlerChrysler (DCX) from "hold" to "accumulate."

According to AC Research?s research note dated February 15 and published this morning, the company has announced provisional 2006 earning results. In 2006, DaimlerChrysler could increase sales revenues by 1% to ?151.6 billion. At the same time, operating profits were up 6.4% at ?5.517 billion. Annual profits improved ?0.4 billion to ?3.2 billion, or ?3.16 per share.

The two corporate brands, Mercedes Car Group and Chrysler Group, saw a rather different development though. While Mercedes Car Group, with sales up 9% to ?54.6 billion, increased operating profits by almost ?3 billion to ?2.415 billion, Chrysler Group experienced a ?3 billion reduction in sales to ?47.1 billion, with operating profits declining by ?2.65 billion to -?1.118 billion.

In all, the results were in-line with the estimates, the analyst mentions. Here, the weak performance by Chrysler clearly receives a rather negative evaluation. Chrysler is suffering in particular from the fact that car buyers are increasingly opting for fuel saving models in times of rising fuel prices. Chrysler offers, above all, SUVs and pickup trucks with rather high fuel consumption.

To restore the Chrysler unit, the management is initially planning to cut 13,000 jobs in the US. Among other things, this includes closing the Newark assembly plant by 2009. In all, the production capacity of Chrysler shall be reduced by 400,000 vehicles per year. The corporate management also announced that it will be reviewing additional strategic options, whereby no option will be excluded. In this context, a complete sale of Chrysler may no longer be excluded, the analyst says.

DaimlerChrysler?s stock responded to the fact that the sale of Chrysler is no longer excluded, and rose 6% to ?54.48 at 10.19 am on Thursday. Currently, the market puts its money on a separation of Daimler and Chrysler. Considering the major operating problems of Chrysler, selling the unit seems a realistic option, AC Research points out. Although one has to wait and see whether DaimlerChrysler will be able to find a buyer prepared to pay a good price for Chrysler, the analyst adds. According to a "manager-magazin.de" report, DaimlerChrysler is already in negotiations with General Motors for the sale of Chrysler Group. So far, DaimlerChrysler has refused to comment on this report. The analyst says, however, that DaimlerChrysler?s stock may continue to slightly outperform the overall market in the next few weeks due to speculations of the Chrysler sale.

AC Research upgrades DaimlerChrysler from "hold" to "accumulate."