Italian carmaker Fiat-Chrysler is likely to miss its debt target when it reports 2012 earnings on Wednesday, making it harder to pay for an ambitious expansion and boost its stake in U.S. affiliate Chrysler.
As Fiat's management moves to increase spending, analysts are keeping a close watch on the debt for signs that its money-losing European operations are straining the group's finances.
Fiat's share price has outperformed rivals like Volkswagen and Peugeot in the past 30 days, driven partly by hopes that Fiat will buy more Chrysler shares beyond its 58.5 percent stake or engineer a full-scale merger.
"We do not believe Fiat will reach its net industrial debt guidance due to overproduction in Europe in the fourth quarter," Commerzbank wrote in a preview note. "We are concerned by the high net debt pile which limits Fiat's options with regard (to) Chrysler and future investments."
Commerzbank has a "hold" rating on Fiat stock.
Fiat's year-end net industrial debt is seen at 6.61 billion euros, according to the median figure in a poll of 23 analysts published by the Turin-based automaker on its website. Their estimates ranged from 6.55 billion to 6.81 billion euros.
The company has been targeting net debt of 6.5 billion euros ($8.7 billion).
For the fourth quarter, the analysts are forecasting a trading profit of 1 billion euros, which includes 780 million euros from Chrysler.
Fiat sees a full-year loss of 700 million euros in Europe, where car sales are entering their sixth year of decline. It does not expect to break even in Europe before 2015.
Fiat trimmed its 2012 targets on October 30 to the lower end of a previous range, forecasting group trading profit of 3.8 billion euros, net debt of 6.5 billion euros and net profit of 1.2 billion euros.
In a new strategy to re-tool idled, money-losing factories in Europe, Fiat said late last year it would increase capital spending by 20 percent between 2012 and 2014 to 25.5 billion euros.
The company aims to be producing 16 Alfa Romeo, Maserati and Jeep models by 2016, mostly for export.
Fiat Chairman John Elkann and Chief Executive Sergio Marchionne will unveil a new Maserati factory in Turin on Wednesday, where two new models will be assembled.
Investors expect few surprises from the results, but they are keen to hear more from Marchionne, who also runs Chrysler, on the timing and financing of planned Chrysler share purchases.
Fiat's share price has been driven in the past month by "market expectations of a merger with Fiat and the listing of Chrysler in 2013," Banca IMI wrote in a note on January 28.
(Reporting by Jennifer Clark; Editing by Tom Pfeiffer)