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.
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