As the chip shortage, supply chain issues and commodity “risks” continue to provide significant obstacles for the auto industry, Raymond James analyst Michael Glen has opted to “take a more prudent approach” to his earnings expectations for parts manufacturers.
“We believe the upcoming 3Q could represent a point of capitulation for the industry, with hopes surrounding some form of 4Q21 rebound in production increasingly challenged,” he said. “Additionally, we have read a few articles regarding chip shortages persisting into 2023, which would represent the need for additional assessment of our forecast. We recognize that this situation must be frustrating to MRE, with North American inventories extremely low and consumers clamoring for pick-up trucks and SUVs. Instead, production can be best described as stop-and-go, with OEMs taking production up and down as the necessary parts come available.
“This has a double whammy impact on the parts suppliers, as over and above the production uncertainty, labour shortages mean that staffing adjustments are difficult as workers may simply not return when recalled. As such, decremental margins may be more severe that those seen in past downturns. Putting it together, earnings visibility remains extremely challenging.”
For Martinrea International Inc., Mr. Glen cut his EPS estimate for the second half of the year by 26 per cent and his 2022 projection by 12 per cent, leading him to cut his target for its shares by $1 to $17 with an “outperform” rating. The average is $18.25.
“The stock remains very deep-value in nature, and we believe there is a compelling opportunity for deep-value investors who are able to look past the near-term uncertainty with regard to chip shortages and other supply chain pressures,” he said.
decreaseMr. Glen cut his EPS estimate for the second half of the year by 26 per cent and his 2022 projection by 12 per cent, leading him to cut his target for its shares by $1 to $17 with an “outperform” rating. The average is $18.25.“The stock remains very deep-value in nature, and we believe there is a compelling opportunity for deep-value investors who are able to look past the near-term uncertainty with regard to chip shortages and other supply chain pressures,” he said.