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 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

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!