Play The Automotive Electronics Game Globally With Visteon

• Visteon Corp VC shares are down 6 percent year-to-date, declining steadily after reaching a high of $109.97 on June 9.
• Baird’s David Leiker initiated coverage of the company with an Outperform rating and a price target of $123.
• Leiker believes that the company is poised to benefit from secular growth in automotive electronics, market share gains, margin expansion and upside from M&A.

After emerging from bankruptcy in 2010, and going through several years of transformation, Visteon is now a “global pure play on automotive electronics,” analyst David Leiker wrote.

In the report Baird noted that the company appears well positioned to benefit from:

Secular growth in automotive electronics – This is estimated to be more than 7 percent per annum. Leiker expects Visteon’s revenue growth to track in-line with the market for the next 2-3 years.

Market share gains - “Developing new technologies and integrating electronics/displays/clusters/infotainment position Visteon to gain market share on new awards launching in 2018-2020; should accelerate revenue growth above 10%,” the analyst said.

Margin expansion – The company seems to have several opportunities for margin improvement, including improvement in the corporate cost structure, leveraging revenue growth and benefits from combining Visteon/JCI Electronics/Yanfeng Electronics.

M&A - Visteon has a robust financial position, with $500 million in net cash. Even after returning $2.5 billion to shareholders, the company would be able to undertake M&A activity actively, with an aim to strengthens or broaden its electronics or software portfolio. “This could add as much as $30-35/share to our mid-term target price,” the report stated.

“Over time, we believe this drives a higher valuation with mid-term returns to shareholders above 20%. Potential catalysts include new CEO, investor interaction with management and execution,” Leiker commented.