Top Pick A very quiet BB. In addition to this, MRE also has a perfect score of 10 on the Thomson Reuters report, has a FV of $21.07, is on the TD Action Buy List and as can be seen, was recently a top pick from John Zechner. For all of these reasons, it seemed like a good time to initiate a position for the long term. GLTA
Scotia’s Jonathan Goldman lowered his target for Linamar Corp. to $82 from $90 and raised his Martinrea International Inc. ) target to $18.50 from $15.50. with a “sector outperform” rating for both. The averages are $80 and $19.33, respectively.
“We are expecting double-digit earnings growth for the suppliers in 2024. December SAAR of 15.9 is still 7 per cent below the pre-COVID average (production is 9 per cent off),” said Mr. Goldman. “Pent-up demand (which we conservatively define as UAW strike losses + lost volumes due to semiconductor shortages) should support volume growth in 2024. Inventory refill would represent upside to our numbers. LTM [last 12-month] supplier margins are still more than 30 per cent below pre-COVID levels. Higher volumes should support margin expansion (decrementals typically run around 25 per cent) while we should see a natural margin uplift as higher cost legacy contracts roll off (supply contracts typically run 5-7 years and include limited pass-throughs on labour, energy, and freight). With valuations implying peak earnings in 2023, a more resilient supplier recovery and increased prospects for a soft landing should act as a catalyst for a re-rate in the sector.
“MRE moves into the top spot in our pecking order. We expect outperformance to be driven by higher exposure to NA (which expect to fare better than Europe/Asia), more fullsome pass-throughs on metals, and higher FCF conversion as it exits a capex cycle (whereas LNR and MGA are investing). LNR moves to the number two slot on a lowered outlook in Ag.”
TOP PICK
Martinrea(MRE-T)
06/11/2023
True, there are headwinds in autos, but this trades at 3-4x operating cash flow and 8-9x forward PE. Also, they're huge in areas like aluminum parts. Are well-positioned in gas-engine cars and EVs; there's 80% crossover shared between both kinds of cars.
(Analysts’ price target is $19.34)
Metal Fabricators
John Zechner
$12.260
Owned