On May 7, we upgraded
American Axle and Manufacturing Inc.
) 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
) 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
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
). Both the companies carry a Zacks Rank #1 (Strong Buy).
AMER AXLE & MFG (AXL): Free Stock Analysis
GENERAL MOTORS (GM): Free Stock Analysis
STRATTEC SEC CP (STRT): Free Stock Analysis
VISTEON CORP (VC): Free Stock Analysis Report
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