American Axle Looking Underappreciated Today, But The Uncertain Future Is A Major Overhang

A year ago I thought the market was being too harsh on American Axle (NYSE:AXL), underrating the company’s ability to survive the transition to electric vehicles and giving the company little credit for the cash flows to be earned over the sunset of internal combustion (or ICE) powertrains. Since then, the shares have risen about 25%, not too shabby over a period where most other parts suppliers are down by double-digits, and I believe only Visteon (VC) has managed double-digit appreciation without a buyout.

While American Axle has been looking stronger of late, and I applaud the company’s ability to adjust its expense structure to lower volumes, the investment case is quite a bit more difficult now. High leverage makes valuation sensitive to even relatively small changes in long-term growth rate or margin assumptions, and the company is still facing a difficult ICE-to-EV transition. I don’t think it’s a stretch to argue for a mid-teens fair value today, but I’d be careful about an extended commitment to this name.

Continue here: 

American Axle Looking Underappreciated Today, But The Uncertain Future Is A Major Overhang