Overreaction From Brexit: RBC Capital Upgrades American Axle To Outperform

American Axle & Manufact. Holdings, Inc.AXL

has been down roughly 12. percent since the United Kingdom voted to exit the European Union. As only 3 percent of American Axle's sales are reliant on Europe, experts, including RBC's Joseph Spak, believe such a large drop is unwarranted.

Spak upgraded American Axle & Manufacturing from Sector Perform to Outperform after noticing the discrepancy between the company's sensitivity to the Brexit without significant exposure to Europe. The analyst decreased his price target, however, from $17.00 to $16.00 due to the instability and possible risks associated with the Brexit and lower expected U.S. demand.

"On a relative basis to the rest of our coverage, the immediate risks from Brexit appear far lower," said Spak. Much of American Axle's sales to Europe are from Jaguar-Land Rover, but the analyst believes the risk will be "manageable."

At-Home Risks

The analyst noted risks domestically as well. "We recognize all the risks to the AXL story — peak earnings, declining margins, over-exposure to GM and GM trucks," said Splak. Those risks are believed to be only long term, as the analyst views General Motors COmpany GM demand to "remain strong for a while."

At time of writing, American Axle traded at $14.38, up 4.43 percent on the day.