KeyBanc Downgrades Autoliv, Says Recall Tailwinds Now Priced Into Shares

In a report published Tuesday, KeyBanc Capital analyst Brett D. Hoselton downgraded the rating on

to Sector Weight. The analyst believes that any meaningful EPS upside during 2015 and 2016 due to the Takata recall and capital deployment have already been priced into the stock. With the completion of the Takata Corp recall and lack of visibility into whether the airbag market share gains can be sustainable, the analyst believes the company's EPS outlook for 2017 is uncertain. In addition, the stock valuation is currently significantly above the historical levels and is likely to have peaked. "There has been no recent indication that ALV will increase the 25M inflator expectation associated with the Takata recall. As OEMs have indicated replacement parts are being sourced from all suppliers of inflators, we believe our previously published upside scenario of 50M replacement inflator units seems less likely," Hoselton reported. In addition, the analyst believes that a majority of potential vehicles in the US have already been covered by the recent NHTSA agreement for 34 million recalls. The analyst also expects limited EPS upside from any increase in capital deployment, given that Autoliv recently achieved its long term leverage target. M&A opportunities are also limited, with the European antitrust investigation continuing to be an overhang. Moreover, the high stock valuation, in combination with a conservative management team, is expected to limit upside to the share buyback estimate of about $500 million a year. Regarding the airbag market share gains, the analyst believes that there is "potential for 2017 airbag revenue to decline year on year, creating a gap if market share gains of 2 percent or more do not materialize."