FBR Capital Reiterates Outperform on Dana Holdings (DAN) Following 3Q
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FBR Capital reiterated an Outperform rating and $17.00 price target on Dana Holdings (NYSE: DAN) following the company's 3Q earnings report. Management noted on the 3Q16 call that it expects to remain on track with Ford Super Duty production in 4Q16. This was reassuring, given that Ford implemented a two-week halt of F-150 production at one plant in North America this week. Also, FBR estimates that Dana's proposed acquisition of SIFCO S.A. for $85 million, announced on October 12, will add an incremental $50 million revenue to Dana's commercial driveline business. Management noted the earnings conference call that SIFCO's profitability is roughly in line with its own Brazilian operation.
Analyst Christopher Horn commented, "We continue to be encouraged by Dana's ability to perform in the face of end market headwinds. There are two themes to focus on coming out of the 3Q16 earnings report (on October 20): currency is shrouding volume growth and margins are stable or growing despite challenging end markets. Excluding currency, a volume ramp has lifted light vehicle driveline segment revenue 8% year over year through the first nine months; after accounting for currency, revenue has grown just 2%. When currency headwinds anniversary in 2017, we may see an uptick in growth. Meanwhile, commercial and off-highway driveline segment margins have been consistent despite global demand weakness. Commercial revenue through the first nine months is down 21% year over year (mostly due to volume), but EBITDA margin has held flat at 8.3%. Off-highway revenue is down 15% but EBITDA margin has fallen just 20 bps. These two themes appear to be underappreciated, but we believe that the market is coming around, since this is the second straight quarter of betterthan-expected EBITDA (and EBITDA margin). Given the company's resilient margin profile and notable light vehicle division volume growth, we continue to recommend shares. We reiterate our Outperform rating and $17 price target."
Shares of Dana Holding closed at $15.10 yesterday.
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