Ford Motor’s (F) Q4 earnings report was decidedly mixed, with a miss on EPS and a beat on automotive revenues, increased business in North American and falling market share elsewhere, while tariff disputes and currency exchange rates took a toll on the bottom line.
In a way, Ford’s troubles – and strengths – typify the state of manufacturing in general. But we can get a possible view of future developments if we take a look upstream, at some of the major automotive suppliers. A number of the major players on that end are showing signs of rallying.
Three important parts suppliers have just reported earnings, or are reporting in the next few weeks, and Wall Street’s analysts have been updating their ratings in response. So far, the results and forecasts are looking good; if major suppliers are an indicator, the automotive industry is looking at a strong summer. We can dip into TipRanks’ database to see why the analysts are bullish.
Lear Corporation (LEA – Research Report)
Lear reported earnings on January 25, and the adjusted figures just beat the expectations. The company, which manufactures components for automotive seating and electrical systems, reported adjusted earnings of $4.05 per share, or $261.3 million total. The forecast had called for an EPS of $3.95.
The similar figures for the year-ago quarter were $4.38 EPS and $300.4 million in total earnings. Gross revenues were also down, at $4.94 billion compared to $5.36 billion last year.
So not a great report, although not as bad as the prognosticators had anticipated. Since the earnings report came out, LEA has received four ‘buy’ ratings in a row. Wall Street’s industry analysts clearly don’t seem fazed by the numbers.
James Picariello (Track Record & Ratings) of KeyBanc weighed in first, giving LEA a $190 price target and suggesting an upside potential to the stock of 22%. In his comments, he said, “Lear is one of the few companies with an appropriately conservative guidance framework already in place.” He added that he “sees several upside scenarios to his model and believes multiple expansion is warranted amid the company's best-in-class free cash flow.”
Also reviewing Lear was Baird analyst David Leiker (Track Record & Ratings). Leiker believes “the company remains a second half of 2019 story as revenue/margins ramp and industry volumes improve.” His price target and upside potential are modest, however: $158 and 2%. It’s important to note that the he did raise his price target 12%.
Overall, Lear holds a ‘Strong Buy’ analyst consensus, based 9 ‘buy’ reviews and 1 ‘sell.’ The average price target of $170 gives a 10% upside when compared to the $155 current share price.
American Axle & Manufacturing Holdings, Inc. (AXL – Research Report)
American Axle builds drivetrain systems and components for the major auto manufacturers. In short, the Detroit-based company builds the parts that make your car go. Axle is looking up in profits, and is expected to report 43 cents per share on February 15. While that is down from last year’s same-quarter result of 90 cents, it does represent a full-year EPS of $3.28. And it’s important to remember that Axle has beaten the estimates in 3 of the last four quarters reported.
So don’t count Detroit down. Wall Street’s market analysts are definitely not. Morgan Stanley’s Armintas Sinkevicius (Track Record & Ratings) saw fit to raise his price target of AXL, to $19, and to give the stock a 25% upside potential. At the same time, five-star financial blogger Nilanjan Choudhury (Track Record & Ratings), writing at Zacks Equity Research, listed AXL as a true bargain, a stock that offers high potential at a low cost of entry. He based his evaluation on a series of factors, including AXL’s outperformance of the S&P500 over the last week, 4 weeks, and 12 weeks.
Overall, AXL also gets an analyst consensus of ‘Strong Buy.’ This is based on 4 recent reviews, including 3 ‘buys’ and 1 ‘hold.’ The stock currently sells at $15.13 per share, making it remarkably affordable, and the average price target of $16 gives a 5.75% upside potential.
BorgWarner, Inc. (BWA – Research Report)
Where Lear is best known for car seats, and American Axle for drivetrains, BorgWarner builds transmission and powertrain components. These are specialized parts, and are essential to the function of every automobile on the road, as anyone who has ever stripped out a gear can testify.
Powertrains don’t come cheap, and BorgWarner is expected to report quarterly sales of $2.57 billion on February 14. The expected EPS is $1.07. Both numbers are just slightly lower than the year-ago quarter’s results of $2.59 billion and $1.10 EPS. 2018 full-year sales are expected at $10.53 billion, and projections put 2019 full-year sales at $10.94 billion.
Baird analyst David Leiker (Track Record & Ratings) sees a solid foundation for those numbers, attributing the company’s growth potential to the industry’s general move toward both electric and autonomous vehicles. BorgWarner, producing key powertrain components, is perfectly positioned to take a leading role in supplying parts for the new technologies. While Leiker did not set a price target to BWA shares, he did give them a solid ‘Buy’ rating.
Other analysts have set definite targets to BWA, and the stock has an average price target of $47.50. This gives a 15% upside when compared to the share price of $41. The stock has an analyst consensus of ‘Moderate Buy,’ based on 7 ratings, including 5 ‘buys’ and 2 ‘holds.’ Note that the four most recent ratings – all ‘Buy,’ have come since January 16, while all of the ‘holds’ are dated January 6 or earlier.
Author: Michael Marcus