Adient's Turnaround Will Take Years, Baird Says In Bearish Turn

Automobile seat maker Adient PLC ADNT's announcement Monday of a management shuffle and guidance cut makes it clear that prior expectations for a "quick fix of operational issues" have become a "multiyear turnaround story with greater risk," according to Baird.

The Analyst

Baird Equity Research's David Leiker downgraded Adient from Neutral to Underperform with a price target lowered from $66 to $50.

The Thesis

Adient's recent struggles are no secret, but until Monday's announcement the stock was merely sent to the "penalty box," Leiker said in the downgrade note.

The sentiment has shifted to "this is going to take much longer to fix," as a change in CEO was "a bit" unexpected, the analyst said. 

Adient's ongoing struggles put it in a weaker competitive position where a recovery in EBITDA and cash flow will take some time, Leiker said. The company will likely struggle to find new business and see a negative impact in its pace of new bookings, he said.

Adient could be backed into a corner where structural issues with its metals business will be difficult to fix without repricing or leaving existing contracts, Leiker said. 

Expectations for Adient's turnaround have been pushed out several years, and the stock's valuation should be pushed to the downside, the analyst said.

Price Action

Shares of Adient were trading higher by 4.9 percent at the time of publication Tuesday. 

Related Links:

Analyst: Adient A Buy On Turnaround Strategy

An Auto Supplier Pair Trade: Tenneco And Adient

Photo courtesy of Adient.