Some Progress At American Axle, But Plenty Left To Prove

American Axle & Manufacturing (AXL) (“AAM”) has had a volatile run since my last update on the shares. I wasn’t all that favorably inclined towards the company due to its heavy reliance on the U.S. market and long-term margin/efficiency issues, but I thought the valuation assumed a pretty dire outlook. Since then, the shares are down another 20%, with the stock dropping about 50% at the worst point (hurt by the strike at GM (GM) ) and then rebounding strongly on third quarter results.

Unless you think the U.S. pickup market is going to be substantially stronger in 2020, it’s hard to get really excited about the near-term outlook. AAM has definitely made progress on its cost structure and operating flexibility, but customer and product concentration remains a risk, as does the high level of net debt. Given that leverage, AAM is the sort of stock that could work out really well if things go even moderately better than expected, but it’s also the sort of stock that could crater if demand weakens further and/or the company has execution issues that lead that heavy debt load to loom even larger.

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Some Progress At American Axle, But Plenty Left To Prove