American Axle Upgraded to Neutral - Analyst Blog
May 09 2013 - 12:15PM
Zacks
On May 7, we upgraded American Axle and Manufacturing
Inc. (AXL) to Neutral based on its focus on
diversification and geographic expansion. However, we are
disappointed about its year-over-year decline in profits and remain
concerned about the weak demand for SUV, high commodity costs and
pricing pressure by OEMs.
Why the Upgrade?
On May 3, American Axle reported earnings of $18.6 million or 23
cents per share (before debt refinancing and redemption costs) in
the first quarter of the year that plunged 62.3% from 61 cents per
share in the comparable quarter of 2012 (excluding special items).
Nevertheless, earnings surpassed the Zacks Consensus Estimate of 15
cents during the quarter.
Revenues were $755.6 million in the quarter compared with $751.5
million in the first quarter of 2012 and missed the Zacks Consensus
Estimate of $757 million. The company’s revenues reflect the
adverse impact of roughly $12.5 million related to the labor strike
at General Motor Company’s (GM) Rayong plant in
Thailand.
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 increased 3.6% to $1.71 per share.
Moreover, the Zacks Consensus Estimate for 2014 also went up 2.8%
to $2.55 per share. Currently, the company retains a Zacks Rank #3
(Neutral).
American Axle focuses on diversifying its customer base, which will
support in generation of incremental revenues. The company supplies
driveline systems and other components to different automakers and
OEMs. In addition, the company is continuously developing customer
relationship with auto companies including Renault, Nissan, Tata,
Mahindra, Cherry, Brilliance and others.
American Axle will benefit from backlog of new and incremental
business, which was launched from 2010 to 2014 amounting $1
billion. In addition, the company will have favorable impacts from
expansion in Asia, due to the rising demand for vehicles in the
region. American Axle also plans to expand its manufacturing
footprint in Brazil, China, India, Mexico, Poland and Thailand.
However, we are worried about the constant pricing pressure from
the major OEMs. In addition, the company is exposed to platforms,
which faces maximum production cuts. Sales and output levels of RWD
light truck and SUV in North America are declining over time, which
occupies a substantial portion of the company’s revenues.
Other Stocks to Consider
Some other stocks that are performing well in the industry where
American Axle operates include STRATTEC Security
Corporation (STRT) and Visteon Corp.
(VC). Both the companies carry a Zacks Rank #1 (Strong Buy).
AMER AXLE & MFG (AXL): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
STRATTEC SEC CP (STRT): Free Stock Analysis Report
VISTEON CORP (VC): Free Stock Analysis Report
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