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Analyst trims Autoliv's EBIT forecast as OEMs manage inventory challenges

EditorAhmed Abdulazez Abdulkadir
Published 03/10/2024, 10:16 pm
ALV
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On Thursday, BofA Securities adjusted its outlook on Autoliv, Inc. (NYSE:ALV), a global leader in automotive safety systems. The firm lowered its price target on the company's shares to $134.00 from the previous $137.00 while maintaining a Buy rating. The revision reflects concerns over the current automotive market dynamics, particularly in Europe.

The adjustment is based on recent warnings from European Original Equipment Manufacturers (OEMs) and a decline in retail sales data, indicating challenges to the strategy of prioritizing 'value over volume' adopted by Western OEMs after the pandemic. The analyst from BofA Securities suggests that this strategy is likely to falter, especially in the mass market, resulting in OEMs reducing production to manage inventories.

In anticipation of potential further downgrades to Standard & Poor's Light Vehicle Production (LVP) forecast, BofA Securities has revised its estimates for Autoliv. The firm has reduced its adjusted EBIT (earnings before interest and taxes) predictions by 3.3% for fiscal year 2024 and by 3.0% for both fiscal years 2025 and 2026. These adjustments place BofA Securities' estimates approximately 5% below the consensus for the third quarter of fiscal year 2024, with a projected margin of 9.5% compared to the consensus of 9.8%.

For the full year, the analyst anticipates a margin forecast of 9.5%, which aligns with the lower end of Autoliv's updated guidance range of approximately 9.5-10%. The report suggests that while a further revision of Autoliv's guidance may be narrowly avoided, the situation warrants close monitoring given the evolving market conditions.

In other recent news, Autoliv, Inc. has seen adjustments in its financial forecasts following its Q2 2024 performance. The company reported lower-than-expected earnings for the June quarter, with revenue at $2.61 billion and earnings per share (EPS) at $1.87. As a result, Autoliv revised its full-year 2024 revenue growth forecast down to 1% from the previously expected 5%. However, the company remains optimistic about a stronger second half with margins between 11-12% and plans to reduce its indirect workforce by up to 2,000, aiming to save $50 million in 2024.

Analysts from various firms have made adjustments in their outlooks on Autoliv. JPMorgan (NYSE:JPM) adjusted its price target for Autoliv to $119 from $117, maintaining a Neutral rating, while Goldman Sachs (NYSE:GS) maintained a Buy rating with a steady price target of $136.00. Deutsche Bank (ETR:DBKGn) initiated coverage on Autoliv with a Buy rating and a price target of $116.00, expressing confidence in the company's ability to grow earnings in the medium to long term. Mizuho Securities adjusted its price target for Autoliv from $135 to $125, maintaining an Outperform rating.

Despite the adjustments, analysts from Goldman Sachs and Deutsche Bank maintain confidence in Autoliv's ability to execute its cost-saving strategies and adapt to inflationary pressures through effective pricing negotiations.

InvestingPro Insights

Autoliv's current financial metrics and market position offer additional context to BofA Securities' analysis. According to InvestingPro data, Autoliv has a market capitalization of $7.34 billion and is trading at a P/E ratio of 12.36, which is relatively low compared to its PEG ratio of 0.17. This suggests that the stock may be undervalued relative to its earnings growth potential, aligning with BofA's maintained Buy rating despite the lowered price target.

InvestingPro Tips highlight that Autoliv has maintained dividend payments for 28 consecutive years and is currently trading near its 52-week low. These factors could be attractive to value investors, especially considering the company's moderate debt levels and analysts' expectations of profitability this year.

However, it's worth noting that Autoliv suffers from weak gross profit margins, which is reflected in the InvestingPro data showing a gross profit margin of 18.09% for the last twelve months. This aligns with BofA's concerns about potential challenges in the automotive market and their revised EBIT estimates.

For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Autoliv, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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