Wells Fargo Downgrades Tenneco (TEN) to Market Perform

Wells Fargo downgraded Tenneco (NYSE: TEN) from Outperform to Market Perform and slightly raised its valuation range to $55-$60 (from $52-$57).

Analyst Richard Kwas commented, "We are downgrading TEN shares to Market Perform from Outperform. Mgmt is executing well. Today's (4/26) 14% move (vs. 0.2% for the SPX) was impressive but pushes the stock price near the top-end of our valuation range. Further, on a macro basis, we are concerned about North American light vehicle production cuts in the 2H of the year (please see our supplier sector downgrade note from today). As such, we are maintaining our 2016 and 2017 adjusted EPS estimates vs. increasing estimates (we suspect our estimates will be well below consensus once the update is complete). TEN's revenue outgrowth has picked up steam and cash flow metrics continue to improve--mgmt deserves much credit. However, we believe it will be a challenge for the stock to outperform in the next 6-9 months considering risks for a North American production cut and the stock's strong outperformance on a year-to-date basis (+25% vs. +2% for the SPX and +1.8% average appreciation in the auto supplier group). Since 2/8/16 (before the Q4 report), the shares are up 62% vs. 13% for the SPX. Estimates and valuation. We have made no changes to our 2016 and 2017E estimates despite our lowered NA production estimates. In our view revenue upside potential in 1H offsets the impact of anticipated production decreases in 2H. We have slightly raised our valuation range to $55-$60 (from $52-$57). Our range applies a 4.8-5.2x multiple to our 2016E adjusted EBITDA. The shares are trading at roughly 5x EV/EBITDA (F'16E) relatively consistent with the historical median of 5.3x."

For an analyst ratings summary and ratings history on Tenneco click here. For more ratings news on Tenneco click here.

Shares of Tenneco closed at $57.49 yesterday.

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