4 Reasons Why Goldman Sachs Downgraded Visteon

Auto parts company Visteon Corp VC got a high-profile Wall Street downgrade Monday and may have difficulty living up to consensus expectations over the next several years.

The Analyst

Goldman Sachs analyst David Tamberrino downgraded Visteon from Neutral to Sell and lowered his price target from $83 to $63.

The Thesis

There are four primary reasons Visteon will continue to underperform in a softening auto market, Tamberrino said:

• The company’s next business update will likely include negative commentary on 2019 guidance, 2021 targets and current backlog.
• Revenue and margins will likely continue to decline given exposure to auto manufacturers and ongoing R&D spending.
• Exposure to Ford Motor Company F could result in additional pricing and volume pressures.
• The likelihood of a potential buyout has dropped significantly.

“Ultimately, we believe high exposure to industry headwinds during a product transition period will create a more difficult 2019 for the company, and we do not see an inflection until 2020 or beyond,” Tamberrino wrote in the note.

Goldman’s updated 2019 revenue estimate of $2.9 billion is about 3.5 percent below consensus expectations. Goldman is also forecasting a 0.4 percent decrease in EBITDA margin in 2019 to 10.3 percent, well below consensus estimates of 11 percent.

Tamberrino says the upcoming business update is likely to disappoint the market given Visteon’s relatively high exposure to China and Goldman’s 2021 revenue forecast of $3.5 percent, about 26 percent short of the company’s current long-term target.

Price Action

Visteon stock traded lower by 4 percent Monday to $64.80.

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Photo courtesy of Visteon.