Diversifying Away From General Motors: American Axle & Manufact. Holdings, Inc. (AXL)

Competitor/Peer Analysis

American Axle’s direct competitors include Dana Holding Corporation (NYSE:DAN) and Magna International Inc. (USA) (NYSE:MGA). Dana is a supplier of driveline products, power technologies and service parts for vehicle manufacturers globally. Magna is a diversified global automotive supplier which designs, develops and manufactures automotive systems, assemblies, modules and components for sale to original equipment manufacturers of cars and light trucks. American Axle trades at a premium to its peers based on enterprise value multiples, with Dana and Magna valued at 4.1 and 5.4 times EV/EBITDA respectively. On a trailing twelve months P/E (excluding extraordinary items) basis, its 11 times P/E lies in between that of Dana and Magna which trade at 13 times and nine times P/E respectively. Of the three, Magna comes up top on financial metrics with a gearing of only 4% and a dividend yield of 2%.

Investment Risks

American Axle has significant customer and product concentration risk. American Axle is the principal supplier of driveline components to GM for its rear-wheel drive light trucks and SUVs manufactured in North America and also the principal supplier of driveline system products for Chrysler’s Ram program. GM and Chrysler accounted for approximately 73% and 10% of its fiscal 2012 net sales.

Steel and metallic materials form the bulk of American Axle’s raw material needs and worldwide commodity market conditions have resulted in volatile steel and other metallic material prices in recent years. American Axle has taken steps to mitigate the impact of raw material price increases through strategic sourcing arrangements with suppliers and technology advancements that result in using less metallic content or less expensive metallic content in the manufacturing of its products.

American Axle faces potential labor cost increases and work stoppages if it is unable to maintain satisfactory labor relations. Substantially all of its hourly associates in the U.S. are represented by the United Auto Workers (UAW), a labor union which represents workers. Approximately 3,850 of American Axle’s hourly associates at its facilities in Mexico and Brazil are also covered by collective bargaining agreements which expire annually.

Conclusion

American Axle is currently trading close to its 52 week high of $13.06 and does not offer a compelling investment case over its peers Magna and Dana at current valuations.

The article Diversifying Away From General Motors originally appeared on Fool.com and is written by Mark Lin.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!