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Baird Expects Methode Electronics Growth To Accelerate, Says Buy On Pullbacks

MEI | September 2, 2016

Baird Equity Research advised investors of Methode Electronics Inc. (NYSE: MEI) to buy the stock on pull backs citing that the growth pace would accelerate. The comments come on the heels of the company reporting its earnings beat while reaffirming its EPS forecast for the fiscal year 2017.

Analysts David Leiker, Joseph Vruwink and Adam C. Schmitz, who remain buyers of the stock, maintain their Outperform rating and boosted the price tag from $45 to $46.

Following the first quarter results, the brokerage sees favorable comparisons for expecting an accelerated growth. The lead analyst is confident of the company capitalizing its fresh business and product launches.

In a research note, Baird said, "While management called out end-market/product headwinds encountered during FQ1, guidance for the year was ultimately reaffirmed and we believe the new business opportunity still supports double-digit earnings growth in second half."

The brokerage expects three factors contributing to the inflection. The first is the continued GM truck volume strength while the second is related to the fresh launches in alliance with Renault. The third factor is the favorable earnings for non-auto divisions since the analyst expects legal spending to moderate while new products and data center programs would add scale.

Baird sees Methode gaining 6 percent in organic core business in the fiscal year 2018 and sees scope for slashing legal spending on Hetronic. The brokerage expects EPS growth of 20–25 percent.

On Friday, the stock edged up by $0.53, or 1.56 percent, to $34.54.

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