Why Jefferies Sees Huge Upside in Fiat Chrysler

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Shares of Fiat Chrysler Automobiles N.V. (NYSE: FCAU) saw a handy gain on Wednesday after the auto manufacturer received the nod from a key analyst. This comes after the company has reportedly been in talks with a Chinese company to acquire it.

Jefferies reiterated a Buy rating for Fiat Chrysler and raised its price target to $19 from $14, implying upside from the previous closing price of 41%. Essentially the firm hiked its price target by about 36%.

In terms of the buyer, Jefferies believes that the Chinese firm Great Wall and Fiat seem to be sizing each other up. The brokerage firm detailed in its report:

We think exiting volume autos is a strategic priority for Exor. Unlike Japanese and Koreanpredecessors, Chinese OEMs don’t have the option of leveraging excess home profits and fx to become global, making M&A with gov’t blessing a logical next step. Political objections are a given should a deal proceed, but these can be managed in a transaction without overlap, similar investment needs (electrification), and no national security implications. With Fiat Chrysler “in play,” one can’t ignore potential interest from other OEMs.

Fiat Chrysler is continuing to realize Jeep’s global potential, but the brand has yet to enter some of the highest profit segments, such as the GMC Yukon or Lincoln Navigator. Jefferies believes this should happen late 2018 with the revival of the Wagoneer family.

Also the idea of Maserati/Alfa-Romeo Independent has been growing on Jefferies. It is still a long shot given the recent relaunch, but the brokerage firm sees signs that the industry is revisiting the concept of size. Electrification can be a costly initial investment, but it enables small OEMs to remain focused on higher mix segments.

Shares of Fiat Chrysler were last seen up over 5% at $14.23, with a consensus analyst price target of $15.78 and a 52-week range of $6.05 to $14.40.