Deutsche Bank Cuts Targets On Most US Autos, Auto Parts Stocks; Says Buy Mobileye, Delphi, Magna

• Shares of Mobileye NV MBLY and Magna International Inc. (USA) MGA have plunged 52 percent and 36 percent since July 27, while Delphi Automotive PLC DLPH shares are down 17 percent.
• Deutsche Bank’s Rod Lache has a Buy rating for all three companies, while reducing the price target for Magna.
• Headwinds in the US market are likely to become “increasingly evident” in 2016 for the Auto and Auto Parts companies, Lache stated.

Analyst Rod Lache cited the likely headwinds for the US market as: “Relatively low economic growth, rising new car prices, deteriorating passenger car (trade-in) prices, rising benchmarks, rising risk premia, lengthening auto ownership.” He expects most stocks in the sector to underperform in case such a scenario unfolds, while Delphi, Mobileye, and Magna are likely to outperform.

North America and China could witness relatively flat demand. “In some ways this could look similar to what the Industry experienced between 2000 and 2005,” Lache wrote.

Mobileye

The company is a leader in one of the most compelling trends in the global market, namely artificial intelligence that assists drivers, prevents accidents, and enables autonomous driving. While this is still in its early stages of growth, the opportunities are “huge,” Lache commented.

Governments are more aggressively promoting safety technologies, and Mobileye has accomplished a remarkable high success rate with OEMs, which could enable this technology to proliferate over the next few years. The analyst believes that investors may be underestimating Mobileye’s leadership in such trends, and also “the difficulty in replicating their position.”

Delphi Automotive

The analyst believes that this company is the most “optimally positioned supplier with respect to the Auto Industry’s Megathemes.”

Vehicle Electrical/Data architectures contribute 50 percent of Delphi’s revenue, and the proliferation of electronics and computers is boosting content growth. Lache mentioned that there is potential for accelerate in organic growth “as electrification reaches an inflection point.”

Delphi has generated robust profits, while its organic growth has been lackluster. Lache expects this to change, “as an acceleration in growth is strongly supported by company specific fundamentals.”

Magna International

The price target has been reduced from $66 to $59. “Amongst the companies that we cover, Magna likely offers the most compelling risk/reward,” the Deutsche Bank report noted. Magna could represent the largest opportunity for specific growth and margin expansion.

Although Magna reported disappointing Q3 results, the company has a plan in place to improve the operations of its three Metal Forming plants by the second half of 16. Lache believes that investors are underestimating the company’s potential to generate organic growth.

Price Target Reductions

Asbury Automotive Group, Inc. ABG – rated Hold, price target reduced from $72 to $68
Autoliv Inc. ALV – rated Hold, price target reduced from $105 to $110
AutoNation, Inc. AN – rated Hold, price target reduced from $62 to $59
American Axle & Manufact. Holdings, Inc. AXL – rated Hold, price target reduced from $23 to $20
BorgWarner Inc. BWA – rated Hold, price target reduced from $41 to $39
Dana Holding Corporation DAN – rated Hold, price target reduced from $20 to $16
CarMax, Inc KMX from $73 to $72 – rated Hold, price target reduced
Lear Corporation LEA – rated Hold, price target reduced from $127 to $134
Tenneco Inc TEN – rated Hold, price target reduced from $60 to $61