Saturday, August 14, 2021

American Axle - Ample Risks, But Maybe Ample Rewards Too

 

Credit where due – in a tough operating environment, American Axle (AXL) is doing pretty well, and management deserves credit for that, as well as the ongoing balance sheet clean up. While the company’s leverage to SUVs and light trucks doesn’t seem to be making a huge difference in terms of near-term revenue performance versus other auto companies I follow, I do expect the company to benefit from OEM efforts to rebuild inventories in these high-value categories as semiconductor shortages ease in 2022.

The key bear argument remains the risk of electrification and how American Axle will fare in an EV world. With a lackluster eDrive offering today, little exposure to higher-value components, and high exposure to General Motors (GM), one of the auto OEMs pledging to in-source EV powertrain content, the long-term revenue cash flow could certainly be at risk. Then again, American Axle has multiple ways to play in the EV future, and the bear case may be overlooking too much of that.

Particularly now that the shares are down about 20% since my last update, I’m warming up to this stock. I already own BorgWarner (BWA) and Valeo (OTCPK:VLEEY) (OTCPK:VLEEF), and I think they’re better positioned for the EV future, so I’m not really in the market for another passenger vehicle-oriented supplier, but the undervaluation/return potential is really starting to stand out to me.

 

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American Axle - Ample Risks, But Maybe Ample Rewards Too

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