Auto Suppliers: BofA Downgrades Lear (LEA) and Visteon (VC) to Underperform on Valuation, Upgrades Dana (DAN) to Buy

September 16, 2021 7:55 AM EDT
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Price: $174.79 -2.39%

Rating Summary:
    15 Buy, 11 Hold, 2 Sell

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    Up: 15 | Down: 25 | New: 91
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BofA analyst John Murphy has made a series of calls in the bank’s research coverage of car suppliers.

Shares of Dana (NYSE: DAN) are up 1.7% after Murphy upgraded shares to Buy from Neutral and cut the price target to $30.00 per share from the prior $31.00.

“Our constructive view on Dana is predicated on its unique diversification across end markets (light vehicle, commercial vehicle, off-highway), which continues to serve as a ballast to revenue and earnings versus other suppliers, as the cycle/macro recovery remains somewhat volatile following the mid-2020 trough. Moreover, the company continues to execute well on its inorganic growth strategy of accretive, technology-focused M&A, specifically focused on electrification,” Murphy said in a client note.

On the other hand, the analyst downgraded Lear Corporation (NYSE: LEA) and Visteon (NASDAQ: VC) to Underperform from Neutral, citing less compelling valuation. New price targets for LEA and VC are $160.00 per share and $108.00 down from $200.00 and $138.00 per share, respectively.

“Lear is viewed as one of the best operators among Seating suppliers, evidenced by its above-average margins and cash flow. However, its track record of over-earning in its Seating and E-Systems segments has corrected more recently with cycle/macro pressures (volumes, price/mix, commodities, etc.) and emerging competitive dynamics. And while these risks appear somewhat priced into the stock, valuation for Lear is still less compelling than other suppliers,” Murphy added.

“Our Underperform rating on Visteon is largely predicated on valuation, as the company trades at a meaningful premium to other suppliers despite financial performance (above-market growth, margins, returns, etc.) that is less impressive. Additionally, while its newer product areas are levered to industry mega-trends and should reaccelerate topline growth and improve bottom line results, its core competencies are in component systems that remain crowded and fiercely competitive,” the analyst said on VC.

Shares of LEA and VC are down 1.1% and 2.2% in early Thursday trading, respectively.

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