KeyBanc analysts looked into the crowded auto parts and equipment space.
KeyBanc Capital Markets' James Picariello on Tuesday initiated coverage of the following:
- Adient PLC (NYSE: ADNT) at Underweight, $18 price target.
- Aptiv PLC (NYSE: APTV) at Overweight, $95 price target.
- Autoliv Inc. (NYSE: ALV) at Overweight, $105 price target.
- Dana Inc (NYSE: DAN) at Overweight, $18 price target.
- Delphi Technologies PLC (NYSE: DLPH) at Underweight, $13 price target.
- Lear Corporation (NYSE: LEA) at Overweight, $178 price target.
Here are few highlights on each stock, according to Picariello.
Adient: Major Transformation Need
- Adient's new CEO Doug DelGrosso could oversee a successful turnaround, but doing so will likely take a long time and comes at a time of weakening global light vehicle sales.
- The company could find a buyer for its China JV Seating business to unlock shareholder value, but there's no sign this will happen soon.
- Shares are down 73 percent in 2018 with reasons to justify the weakness "growing in number."
Aptiv: Focus On 'SACREd' Products
- Aptiv boasts the highest degree of exposure to the "SACREd" segment of the automotive market, including Shared, Autonomous, Connected, Resized and Electrified driving.
- Aptiv's prospects has yet to be fully appreciated by the Street, which implies the potential for upside estimate revisions and a higher multiple for the stock.
- The company has already established multiple "critical partnerships," which will help in solidifying a leadership position.
Autoliv: Overall 'Formidable' Company
- Autoliv is the clear No. 1 supplier of passive safety products, which makes it a "formidable" company that's well positioned for the future.
- The company's 50 percent order intake win-rate over the past four years is particularly attractive as initial launch costs have already been absorbed.
- Autoliv should generate a mid-teens annualized EPS growth through 2020, which implies shares are undervalued today at just seven times EV/EBITDA on 2020 estimates.
Dana: Overdone Concerns
- Investor concerns relating to the cyclical cycle nature of the business aren't justified given a favorable backlog.
- The company's acquisition of TM4 and Oerlikon are both highly strategic and offers exposure to the electrification segment.
- Shares of Dana are trading near historical tough levels at just 3.8 times EV/EBITDA, which is one turn below the peer average.
Delphi: 'New Story' Required
- Expectations for strong revenue growth and margin expansion from the 2017 Aptiv spin hasn't played out.
- Delphi needs to present investors a "new story" to prevent further downward earnings revisions and multiple contraction.
- The company's fastest growing verticals (GDi and Power Electronics) are unlikely to reach breakeven until 2020.
Lear: Impressive Metrics
- Lear isn't getting enough credit for its impressive 14 percent free cash flow yield and 22.5 percent average return on invested capital over the past five years.
- The company is among the best positioned to benefit from electrification and remains a premium seating supplier in luxury SUV and CUVs.
- Lear's stock is trading at a 5 to 10 percent discount to its peers on EV/EBITDA and P/E multiples.
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