Ford Motor Company F 0.89% and General Motors Company GM 2.11% aren’t just car companies. In fact, Citi analyst Itay Michaeli believes that pickup trucks play a much more important part in the two companies’ bottom lines than many seem to appreciate.
In fact, Citi estimates that trucks account for up to two-thirds of Ford and GM’s North American profits.
“What’s surprised us most over these three years is that—despite very strong pickup truck performance – the street seemingly settled on simplistic explanatory storylines like ‘housing’—implying that pickup strength wasn’t & isn’t anything special or unique,” Michaeli explained.
Citi still sees pent-up demand for pickup trucks, an indication that GM and Ford have some high-margin earnings growth ahead. Citi estimates that the pickup installed base has grown at a compound annual rate of about 3.0 percent since 2001, while the light-vehicle market has growth at less than 1.0 percent annually.
Michaeli believes the pickup truck earnings of these companies most closely resemble those of Class 8 Original Equipment and Industrial stocks and should be valued as such. Citi calculated…
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