Jefferies Initiates US Auto Tech Suppliers as Innovation Drives the Next Auto Cycle - (BWA) (DLPH) (TEN)
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Automotive production has rebounded significantly since 2009 driven by rapid recovery in the US as well as improved vehicle penetration in China. Jefferies has decided to initiate coverage on several US Auto technology suppliers. Their analysts see sustained stable demand in mature markets as record old vehicle fleets and consumer demand for vehicle safety advancements are likely to drive a consistent replacement cycle.
Jefferies analyst David Kelley commented, "We are initiating coverage of the US Auto technology suppliers. As traditional OEMs face both accelerating regulatory pressures & industry innovation, we see incremental opportunity for value-add suppliers. We believe suppliers at the forefront of emissions & safety innovation deliver outsized comp growth as the market transitions from the post-recession cyclical recovery (a unit growth story) to the mobility innovation cycle (a content per vehicle story)."
Kelley believes that the global market is shifting. Mature auto markets will benefit from sustainable vehicle replacement cycles. The U.S. and Europe are both currently populated by record old vehicle fleets. As vehicle wear accumulates, Jefferies believes that consumers in both regions will "trade up" and forgo rising costs associated with repairs of an aging vehicle. Rapid new mobility innovation in areas such as fuel economy, and safety likely drives further bias to replace older cars. Also, low vehicle penetration across five of the nine largest auto markets suggests continued opportunity for worldwide vehicle expansion.
Jefferies has decided to focus primarily on mature vehicle markets such as the US and EU, where appetite and affordability are likely to spur an accelerated pace of mobility innovation; and has decided to initiate coverage on BorgWarner (NYSE: BWA) (Buy), Delphi Automotive (NYSE: DLPH) (Buy), and Tenneco (NYSE: TEN) (Hold). They have also transitioned coverage of Cooper-Standard Holdings (NYSE: CPS) with a Hold rating.
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