Analyst action... Expecting a “fine” quarterly earnings season for Canadian auto parts manufacturers and a reiteration of 2023 guidance, Raymond James’ Michael Glen raised his Martinrea International Inc. target to $16.50 from $13.50 with an “outperform” rating. The average is $15.06.
“In our view, things are going to be fine in 2023 for auto volumes in both North America and Europe,” he said. “We have heard the bear case: recession, credit concerns, pressure in the used car market … we get it, there are hurdles. But as we step back and think about an industry that has already faced THREE years of depressed sales and production, we think that 2023 ultimately turns out to be ok.
Over the past 3 years, the global auto industry has seen two large influencing factors:
1. COVID-related shutdowns in early 2020 having a very abrupt and severe impact on production levels; and
2. Chip and supply chain constraints that built through 2021 and extended into 2022.
These two factors have constrained production levels in an environment where demand in North America has remained consistent (stress consistent). This has led to a situation of still low inventory levels coupled with high average transaction prices and low incentives. We think this latter item, still very high average transaction price and low incentives offer the OEMs a powerful lever in 2023 if they need to stimulate volume (and we ultimately believe these tools will be used).
If the OEMs start to reduce volume and increase incentives, there is very real basis to believe this will trigger a demand response, and we think this ultimately plays out in 2023.”