Wells Fargo Says Buy Autoliv Following Selloff

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“The recent share pullback likely stems from disappointing news related to the push-out of the active safety revenue outlook, slowing active safety sales headline, and lower than expected 2017 guidance,” Wells Fargo’s David Lim said, upgrading the rating on Autoliv Inc. ALV to Outperform.

The analyst believes that fundamentally, the stock has reset and it's now up to management to deliver. Following the pullback, the risk/reward is now favorable, given that the company’s long-term story is intact.

On the other hand, Lim said Autoliv’s passive safety wins had been strong, while active safety was expected to play out “eventually.”

Stating that passive safety continued to gain momentum, the analyst noted that given the recent strength in wins for this segment, management expects the shortfall in active safety, in terms of the 2019 target, to be more than offset.

Related Link: Autoliv Shows Advanced Positioning and ADAS Horizon Sensors in the Automotive Market at 2017 CES

Meet Or Beat Targets

In fact, Autoliv expressed confidence that it could exceed its total revenue target of $12 billion by 2019.

Autoliv expects passive safety revenues at $9 billion by 2019. The analyst believes that assuming 15 percent incremental margin for this business and 6 percent margin for electronics, 2019 earnings could meet or exceed $8.70.

“Further, the balance sheet provides mgmt with plenty of optionality including acquisitions and share buybacks, in our view,” Lim said.

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Posted In: Analyst ColorLong IdeasUpgradesAnalyst RatingsTrading IdeasDavid LimWells Fargo
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