BofA: Buy Delphi Automotive Before It's Too Late

Delphi Automotive PLC DLPH confirmed last week an accelerated plan to spin off its two businesses into two different publicly traded entities, Aptiv PLC (the electronics business) and Delphi Technologies (the powertrain business).

The Analyst

Bank of America's John Murphy upgraded Delphi Automotive's stock rating from Neutral to Buy with a price target raised from $110 to $120.

The Thesis

Delphi Automotive was expected to finalize its spinoff by March 2018 but has since set a new distribution date of Dec. 4, Murphy said in a Monday note. (See Murphy's track record here.)

The accelerated timeline could be seen as an indication of a "more imminent bid for any one of the assets," which would become "more apparent" when the separation is finalized and the two new companies begin trading separately, Murphy said. 

Since the company's split into two entities will occur in a few weeks, a valuation model of each separate entity is essential in determining Delphi Automotive's valuation, the analyst said. While the forward estimates are mostly in-line with what the company provided during September's analyst day presentation, a new valuation model needs to include upside from the assumption of one of the two assets being acquired by a traditional automotive supplier or new tech-oriented company, according to BofA. 

An in-depth sum of the parts valuation model suggests a total combined equity value of around $32 billion, which implies $120 per share, Murphy said.

Bottom line, now is the time to buy Delphi Automotive's stock "because someone else may beat you to it," he said. 

Price Action

Shares of Delphi Automotive were trading higher by more than 3 percent early Monday afternoon.

Related Links:

Delphi's Spinoff Upside Already Priced In?

'It's A Huge Deal': Delphi Buys Autonomous Startup nuTonomy

Photo courtesy of Delphi.