Credit Suisse says there is limited upside in TRW Automotive (NYSE: TRW) despite rumors of an acquisition by ZF in recent weeks.
“While we think TRW has one of the more interesting growth stories in the supplier universe... Our DCF analysis suggests fair value of $106/share, implying only 7% upside from current levels,” writes analyst Dan Galves.
If the deal falls apart, shares could fall to the low $90 level, according to Credit Suisse. The research report further states that this could be an attractive buying opportunity.
In this case, growth opportunities include Chinese growth, increasing demand for active safety products (which would increase margins) and further use of electronic power steering.
In a segment called, “Makin’ It Rain,” Galves writes about TRW’s cash flow.
“If TRW uses some of that cash for pension de-risking and/or to pay EU anti-trust penalties, we still see ~$1.0 bln of additional leverage capacity, which it could use to buyback ~8%-9% of outstanding shares.”
The $106 price target is based on a DCF which assumes three percent terminal growth and 11 percent WACC.
Shares of TRW were last trading 0.13 percent higher at $99.70 on the upgrade.
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