China Fears Factored Into Autos; Goldman Highlights Tenneco And Johnson Controls As Ways To Play

In a report published Wednesday, Goldman Sachs analyst Patrick Archambault mentioned that market sentiments in the Automobile segment appeared to be more negative than warranted by the downside risk from China. Analyst Patrick Archambault explained that, although there is downside risk from China, auto equities were implying a 40 percent decline in ROW revenue over the next 12 months, versus "the down 2% in our models." China's July auto retail sales were down 1 percent, while wholesales and production plunged 5 percent and 11 percent, indicating accelerated destocking. Archambault upgraded the rating on

from Neutral to Buy, while raising the six-month price target from $59 to $60. Although Johnson Controls' shares underperformed the group, the company could generate double-digit EPS growth "beginning in 2016 through 2019 from a lagging end-market inflection in Building Efficiency in combination with solid Power Solutions growth," the Goldman Sachs report stated. "Furthermore, our SOTP analysis indicates JCI is not being fully attributed its value per share of the individual businesses – which could potentially be unlocked from the recently announced Automotive business spin," Archambault added. Goldman Sachs upgraded the rating on

from Sell to Neutral, while maintaining the six-month price target at $60. Tenneco's shares declined by 6 percent, versus a 3 percent rise in the S&P500. The company's new revenue guidance was in-line with the Goldman Sachs estimates, and there was now "a clearer path to growth beginning in 2016 off a lowered 2015 base driven by continued content growth from tightening regulatory standards." Archambault believes that Tenneco appeared poised for a "long-term benefit" from increased penetration of gasoline direct injection which requires gasoline particulate filters, which was a space where the company could "leverage its DPF expertise."