Dana Holding (DAN) PT Lowered to $14 at JPMorgan

JPMorgan analyst Ryan Brinkman lowered the price target on Dana Holding (NYSE: DAN) to $14.00 (from $16.00) while maintaining a Overweight rating.

The analyst comments "We are catching up on Dana earnings by lowering our estimates and price target after the supplier earlier this earnings season reported 3Q results featuring higher than expected EBITDA despite lower than expected revenue, implying solid execution, but also spoke of softening end-market demand impacting both 4Q24 (prompting a reduction in full year revenue and EBITDA outlook) and continuing into 2025. Looking more closely at the quarter, revenue in 3Q tracked $2,476 mn, materially below Bloomberg consensus for $2,573 mn and JPMe $2,623 mn; despite this, however, adjusted EBITDA was actually better at $232 mn vs. consensus for $220 mn and JPMe $225 mn, given notably stronger 9.4% margin vs. consensus and JPMe both 8.6% margin. EBITDA declined just -$7 mn y/y despite sales -$193 mn, implying highly limited decremental margin performance of just 3.6%, explainable by cost saving actions and overall strong execution helping to offset the ordinarily expected larger decremental margin (typically ~15-25%) on lower sales due to softening demand for electric vehicles across end-markets as well as lower production of traditional internal combustion commercial trucks, off-highway equipment, and certain light truck platforms. Free cash flow in the quarter was an outflow of -$11 mn, below consensus for an inflow of +$65 mn, driven by an increase in inventory amidst the demand slowdown, as well as by higher cash interest and taxes, partly offsetting lower capital spending. Adjusted EPS came in at $0.12, below consensus for $0.22 and JPMe $0.20, with a higher tax rate offsetting higher than consensus EBITDA. Given the gathering demand headwinds impacting 3Q, including for electric vehicles, management lowered their outlook for full year revenue and EBITDA to ranges which at the midpoint are below what the Street was looking for heading into the print. Flowing the slight 3Q EBITDA beat but also implied softer 4Q through our model, we now forecast EBITDA for 2024E of $875 mn vs. $882 mn prior, for 2025E of $885 mn vs. $940 mn prior, and for 2026E of $930 mn vs. $990 mn prior. Our December 2025 price target declines to $14 from $16, on account of our lower out-year estimates. We view Dana’s normalized free cash flow as at least $200 mn (for context, the company generated $229 mn of FCF in pre-pandemic 2019 and $209 mn as recently as 2022), implying >16% yield to current market capitalization on normalized FCF, which we feel helps highlight the inexpensive nature of the equity alongside forward multiples of just 6.7x NTM EPS and 4.4x NTM EBITDA."

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