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Jeep’s spectacular performance in Europe will have reassured investors getting worried about parent Fiat Chrysler Automobiles bottom line, and will come as a relief to Moody’s Investors Service which raised its investment rating on FCA.

In the first 10 months of 2015, Jeep sales in Western Europe boomed by more than 150 percent to 68,570 from 27,008 in the same period last year, according to the European Automobile Manufacturers Association, known by its acronym in French, ACEA.

Jeep was boosted by the performance of its new small SUV, the Renegade, which accounted of almost two thirds of sales. Fiat also did well in Western Europe, raising sales by 10.4 percent to 536,615. Fiat sells a version of the Renegade called the 500X. Last week Moody’s raised its rating on FCA to positive from stable, citing Jeep in particular and FCA’s expected performance in the U.S. and Europe in general.

“The change in outlook to positive reflects the continuation of the positive earnings trends by FCA in two of its core regions NAFTA and (Europe) supported by favorable growth in demand for passenger cars and the success of some of its key brands, especially Jeep,” said Moody’s analyst Yasmina Serghini.

Surprise

This may come as a surprise to some analysts who were unimpressed by FCA’s 3rd quarter performance which was hit by 761 million euros ($812 million) in recall costs. This helped turn a net profit of 188 million euros ($200 million) a year ago into a loss of 299 million euros ($320 million) for the 2015 third quarter. Excluding these problems, FCA raised earnings before interest and tax (EBIT) to 1.3 billion euros ($1.4 billion) from 968 million euros ($1 billion) in the same period of 2014.

According to Bernstein Research analyst Max Warburton, FCA shares continue to be expensive on stock markets despite some worrying problems.

“The reality is that FCA’s margins are thin, its balance sheet over-leveraged and its bottom line earnings minimal. It remains the industry’s most challenged and fragile major (manufacturer). So why do investors continue to pay such a premium for it?” he said.

“The answer is obvious: it’s run by (CEO) Sergio Marchionne, perhaps one of the most gifted orators in the history of business,” Warburton said.

Moody’s is much more positive, saying Europe and the U.S. will continue to help the company in the next 12 months, helped by new model launches and measures to enhance pricing power and capacity use.

“In particular, Moody’s believes that FCA will be able to sustain a stronger EBIT margin in the NAFTA region in the next 12 months – between 5.5 percent and six percent, up from 4.1 percent in 2014, fueled by the success of its Jeep brand, the launch of new RAM and Chrysler brand models as well as ongoing initiatives to enhance pricing power,” Moody’s said in a report.

Maserati

Moody’s expects FCA to ease its debt structure problems, already benefiting from the Ferrari spin-off. But it does worry about the high level of competition in Europe and Latin America, and uncertainty about the revival plan for Alfa Romeo. The Alfa revival plan has recently been delayed again. The launch of the new Maserati Levant SUV in 2016 should help revive slumping profits in the remaining luxury subsidiary.

But Bernstein rates FCA shares as “underperform”.

“We do not believe FCA will ever deliver the profitability needed to justify its stock price, never mind get anywhere close to its official (2018) targets. We continue to see FCA as over-promising, over-leveraged and over-valued,” Bernstein’s Warburton said.

Marchionne recently said his 2018 targets are intact. These include a 46 percent increase on 2015 sales, a doubling of EBIT and quadrupling of net income.

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