On Jul 4, we maintained our Neutral recommendation on
American Axle and Manufacturing Inc.
). Though we are bullish about the company's focus on
diversification and geographic expansion, we are disappointed
with the company's year-over-year decline in profits. We are also
concerned about the weak SUV demand, high commodity costs and
pricing pressure by OEMs.
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Why the Reiteration?
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, down 62.3% from 61 cents per share in the
comparable quarter of 2012 (excluding special items).
Nevertheless, earnings surpassed the Zacks Consensus Estimate of
Revenues of $755.6 million in the quarter were slightly higher
compared with $751.5 million in the first quarter of 2012, but
missed the Zacks Consensus Estimate of $757 million. The
company's revenues reflect the adverse impact related to the
labor strike at General Motors' Rayong plant in Thailand.
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 remained flat at $1.72 per share.
However, the Zacks Consensus Estimate for 2014 went up 4.7% to
$2.70 per share.
American Axle focuses on diversifying its customer base, which
will boost revenue generation. The company supplies driveline
systems and other components to different automakers and OEMs. In
addition, the company is continuously developing its customer
relationship with auto companies including Renault,
Nissan Motor Co.
), Tata, Mahindra, Cherry, Brilliance and others.
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 stocks that are performing well in the industry where
American Axle operates include
Magna International Inc.
). Both carry a Zacks Rank #1 (Strong Buy).