Autoliv Shares Are Overvalued, But Don't Sell Just Yet

Buckingham Research Group upgraded Autoliv Inc. ALV and also raised its price target, which implies 10 percent downside from current levels. Autoliv stock ran up 12 percent on Thursday following its announcement that it has initiated strategic review to separate its Passive Safety and Electronics business segments.

Buckingham raised its rating on Autoliv from Underperform to Neutral and upped its price target from $87 to $114.

At time of writing, shares of Autoliv were trading at $125.52.

Even after giving credit to the expected outsized growth, Buckingham analysts believes shares, trading at 9.4 times its 2017 EBITDA estimates (a 2.5 turn premium to the group), are fully valued. However, the firm feels shares can rise further.

See Also: Which Is A Better Investment: Automakers, Auto Suppliers Or Car Parts/Service Providers?

Analyst Glenn Chin sees the strategic review as the company's efforts to capitalize on the anticipated ramp in Passive Safety growth over the next couple of years, as well as investor enthusiasm around standalone high-tech/high-growth auto suppliers.

With the planned separation, Chin believes there's unlikely to be any negative catalyst for bearish investors to latch onto. If the separation does occur, the firm expects shares to rise, as the action would render the Electronics business as a stand-alone, hi-tech and hi-growth supplier leveraged to active safety/autonomous driving.

The attention the business could attract as a potential take-out candidate could also support the stock price, Buckingham said. The firm's best and worst-case scenarios for the stock are $140 and $97, respectively.