RBC Capital on Dauch Corporation (DCH): 'The capital return potential with this name is substantial in our view'

RBC Capital analyst Tom Narayan reiterated an Outperform rating and $10.00 price target on Dauch Corporation (NYSE: DCH).

The analyst comments "What do we think? Typically, supplier strikes are resolved much quicker than OEM strikes. Given just-in-time delivery dynamics, the OEMs, this case GM, we expect, will step in to ensure production resumes. We also expect there is adequate inventory to absorb lost production for a certain period. As such, we would expect a resolution to occur in relatively short order. Interestingly, most of the questions we have received have focused on the potential of GM to in-source axles as a result of this. As we learned at the DCH facility tour we hosted on May 20 ( see report ), while axles are in-sourced by Ford on both standard and HD as well as for Ram on the standard, we don't see GM spending the capital required to do the same for its pickups. This would far exceed the amounts spent by Ford and Stellantis (which owns Ram) years prior. Additionally, GM is focused on software investments, including ADAS, connectivity, and SDV, not on in-sourcing axles. DCH remains on of our highest conviction ideas. Our $10 PT represents 58% implied upside and this is on a depressed 4.5x EBITDA multiple. Peers are trading closer to 5x, which could mean a $14/share value or 120% implied upside to current levels. Most of the push-back we have received on DCH has concerned leverage and the fact that capital return might not happen until 2028 given the company's position to do so only until it gets to 2.5x leverage. It expects to get closer to 3x by yearned '26, up from 2.7x at the end of Q1/26. We expect both Q2/26 along with the November investor day to be important catalysts for the stock, however, as we will get more clarity on synergies, much of which we think is low-hanging fruit. The capital return potential with this name is substantial in our view. Our math shows that it could return $1B of stock by year-end 2029 and stay at 2.5x leverage. That is ~65% of the company's entire market cap."

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

Shares of Dauch Corporation closed at $6.64 yesterday.

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