April 27, 2015

VALUATION WATCH: Overvalued stocks now make up 60.7% of our stocks assigned a valuation and 22.44% of those equities are calculated to be overvalued by 20% or more.  Fourteen sectors are calculated to be overvalued--with seven at or near double digits.

--Auf Wiedersehen

Porsche Grandson Ferdinand Piëch Out at VW

VOLKSWAGEN-ADR is the largest automobile manufacturer in Europe. Their activities focus on the automotive market and they offer products and services along the entire automotive value chain. With nine independent brands, they are able to offer a unique range of models from the extremely efficient 3-litre car to the great sporting tradition of Bentley. While each of the brands has a distinct personality, it also benefits from its membership of the Volkswagen Group with its global manufacturing base.

The company was in the news this weekend as longtime Chairman Ferdinand Piëch was ousted by the company's Supervisory Board. Ironically--at least for Piëch--this action occurred after he himself tried to remove VW CEO Martin Winterkorn. Piëch, the grandson of the famous Dr. Ferdinand Porsche, had up to this point mastered the art of getting his way at the company and had successfully ousted other management figures and taken over the firm when it tried to acquire Porsche several years ago.

The members of the Executive Committee at VW released a statement in which they noted that "the mutual trust necessary for successful cooperation no longer exists" and "for this reason Professor Dr. Ferdinand K. Piëch has resigned with immediate effect from his position as Chairman of the Supervisory Board and from all his mandates as a Supervisory Board member within the Volkswagen Group. In addition, Ms. Ursula Piëch (his wife) has resigned with immediate effect from all her Supervisory Board mandates within the Volkswagen Group.

Shenanigans at the upper reaches of company management was seen as a distraction from the company goal of becoming the world's largest auto manufacturer. The company has most certainly grown in recent years, but profitability has been a problem despite big sales growth. Piech thus opened the door to his own ouster with his latest attempt to oust the CEO.

It remains unclear at this point who will replace Piech. The management structure for Volkswagen Group includes a managment faction, labor--in the form of the firm's the company worker councils, and the government of the German state of Lower Saxony. It appears that the labor interests, thanks to the support of Lower Saxony, have the upper hand in the struggle at this point--the majority of VWs German plants are located in that state.

Of course, if labor interests are preeminent, it may make it difficult for the firm to translate recent sales growth into better profitability. And, VW itself is not the overall cash cow for the business. Porsche, Audi, and Skoda provide the most boost to the bottom line. The Volkswagen brands have had issues in the US and its emerging market business--with the exception of Chinese sales--is also a problem.

Despite the shake up, ValuEngine continues its BUY recommendation on VOLKSWAGEN-ADR for 2015-04-24. Based on the information we have gathered and our resulting research, we feel that VOLKSWAGEN-ADR has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE Company Size and P/E Ratio.

Classic 1949 VE Beetle, Originally Created by Piëch's Grandfather Dr. Ferdinand Porsche in the 1930s

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Below is today's data on VLKAY :

ValuEngine Forecast
	Target Price*	Expected Return
1-Month	50.98	0.72%
3-Month	52.42	3.57%
6-Month	54.18	7.05%
1-Year	55.00	8.67%
2-Year	55.40	9.46%
3-Year	52.42	3.58%

Valuation & Rankings
Valuation	10.88% overvalued	Valuation Rank(?)	38
1-M Forecast Return	0.72%	1-M Forecast Return Rank	92
12-M Return	-4.85%	Momentum Rank(?)	44
Sharpe Ratio	0.59	Sharpe Ratio Rank(?)	80
5-Y Avg Annual Return	19.22%	5-Y Avg Annual Rtn Rank	86
Volatility	32.38%	Volatility Rank(?)	55
Expected EPS Growth	-1.44%	EPS Growth Rank(?)	24
Market Cap (billions)	74.67	Size Rank	99
Trailing P/E Ratio	9.11	Trailing P/E Rank(?)	96
Forward P/E Ratio	9.25	Forward P/E Ratio Rank	91
PEG Ratio	n/a	PEG Ratio Rank	n/a
Price/Sales	0.29	Price/Sales Rank(?)	91
Market/Book	1.81	Market/Book Rank(?)	58
Beta	1.68	Beta Rank	19
Alpha	-0.16	Alpha Rank	42

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