Markets

Here's Why Adient Shares Surged Higher on Friday

What happened

Shares of autoparts supplier Adient (NYSE: ADNT) jumped more than 13% on Friday morning after the seating specialist received its third analyst upgrade of the month and a vote of confidence that the company will be able to successfully refinance its burdensome debt load.

So what

Adient had a lousy March, with shares losing 33% of their value on growing concern that the automotive market has peaked. A slowdown would be particularly dangerous for Adient, given the company's $3.41 billion in total debt and razor-thin margins.

An automotive interior design.

An Adient seating concept. Image source: Adient.

Bank of America Merrill Lynch analyst John Murphy came to the company's defense on Friday, upgrading the shares to buy from neutral and raising his price target to $25 from $19. Murphy in an accompanying note said he believes Adient will soon be able to refinance its debt, alleviating any liquidity concerns and allowing CEO Douglas DelGrosso, who joined the company in October, to execute a turnaround plan.

The upgrade was Adient's third in April. Last week Robert W. Baird upgraded the shares from underperform to neutral, and RBC Capital moved them from underperform to sector perform.

Now what

Adient has had a difficult run since being spun out of Johnson Controls in 2016, with its shares down more than 50% since the split. The company has a strong share of the global seating market, controlling nearly 40% of the market in North America and Europe and a slightly higher percentage in China, but seating tends to be a price-sensitive component from which it is difficult to extract high margins.

With that in mind, it is up to DelGrosso to manage costs and extract more value from the portfolio. It will be a difficult task if automotive sales are slowing, but if the debt refinancing comes through, at least the CEO will have the time needed to implement his plan.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Adient. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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