Wells Fargo Starts Adient (ADNT) at Outperform
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Wells Fargo initiates coverage on Adient (NYSE: ADNT) with a Outperform rating and valuation range of $60-$64.
Analyst David Lim commented, "We are initiating coverage on ADNT with an Outperform rating as we believe there is a self-help story unfolding. After years of underinvestment by JCI (and slow restructuring progress), we think ADNT's mgmt is focused on not only growing the business (business bookings have been impressive) but expanding margins (mgmt may be conservative with its cost savings targets). We fully recognize there are cycle concerns. NA production will likely decrease in CY17 and China production outlook has been adjusted downwards by IHS throughout the year. As such, we model FY17 below mgmt's guidance. Even with our below guidance forecast (we have a more conservative view on NA production), applying a 4.3x EV/EBITDA multiple on the core business and 9.5x P/E multiple to equity income lands us at a $62 valuation range (midpoint of our val range and 35% upside from the when-issued closing price of $45.98). We note that ADNT should generate significant free cash flow in FY18 (FCF will be used to delever the balance sheet and return capital to shareholders). Our valuation range is $60-$64 applying a 4.3x EV/EBITDA multiple on the core business and 9.0x-10.0x to equity income."
Shares of Adient closed at $45.98 yesterday.
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